Who can contribute to a TFSA?
Any Canadian resident can open a TFSA as long as they are over 18. Certain provinces age of majority is 19 which could delay opening of a TFSA account based on the product you purchase.
How much can I contribute?
You can contribute up to $5,500 per year. With inflation this amount could increase in $500 increments (subject to government guidelines). In 2015, this was increased to $10,000.
What happens if I do not contribute the full amount each year?
If you are not able to contribute in any given year your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate.
Example: Assume Mike (age 48) was not able to make a contribution to the TFSA until 2011, the year when he receives a small inheritance. He could make a contribution of $15,000 in that year.
What happens if I contribute more than my limit in a year?
If you over-contribute, similar to an RRSP, a penalty of 1 % per month will be assessed by the Canada Revenue Agency on the amount that is over your accumulated contribution room.
How will I know if I over-contribute?
The government will monitor total TFSA contributions and will confirm unused room and limits on a yearly basis – much like the notification now happens for RRSP contributions – on your Notice of Assessment and through the ‘My Account’ on the CRA website.
Can I withdraw the money I contributed at any time, for any purpose?
Money can be taken out of your TFSA at any time and for whatever purpose you need it for. There are no restrictions on how much you can withdraw.
Do I pay any income tax on withdrawals?
No, withdrawals are made tax-free.
Do withdrawals affect my taxable income?
No, since withdrawals are not considered taxable income they are not reported as income in your taxes.
Can I re-contribute my withdrawal at a later date?
Any withdrawal amounts made in the current calendar year will be added to your unused contribution room for the following year, but cannot be re-contributed in the year of withdrawal.
What Type of investments are available in a TFSA?
Like the investment choices inside the RRSP there are several options within the TFSA including; Stocks, Bonds, ETF’s, Mutual Funds, Segregated Funds, GIC’s, and savings accounts.
Effectively using a TFSA involves understanding how each investment type will affect your income tax situation. Contact us today to find out what TFSA option best suits your needs.