BMO report suggests Canadians still don’t understand the ins and outs of TFSAs

BMO report suggests Canadians still don’t understand the ins and outs of TFSAs

BMO report suggests Canadians still don’t understand the ins and outs of TFSAs Financial advisors got a gentle reminder last week that many of their clients probably need a refresher course when it comes to TFSAs. BMOs report reveals that almost half the respondents don’t understand the rules including the penalties involved for over contributing.

At a time when retirement readiness is an important topic of conversation in the financial press it follows that advisors also could benefit from revisiting the TFSA rules. As Ken Kivenko stated in the October print edition of Wealth Professional when discussing the penalty scandal, “Thousands of people pulled money out of their TFSA and then put it back again. Their advisors told them to do it. In other words, they did not understand the TFSA rules, but these are the people calling themselves advisors.”

With the popularity of TFSAs rivalling those of RRSPs both advisor and client need to be on the same page.
According to BMO, approximately 10% of Canadians with TFSAs have over-contributed to their plans in the past paying average penalties of $413. That’s totally unacceptable when you consider the rules themselves really aren’t that confusing.
 
Rule 101 when it comes to over-contributing: if you maximize your allowable contribution in a certain year and then withdraw money after that (in the same year), you can’t make another contribution in that year. If you do the excess amount will be penalized by the Canada Revenue Agency at 1% per month until the excess amount is either withdrawn or becomes part of the eligible contribution room for the next year.

Whether your client has $30,000 in contribution room or $3,000, it’s important that advisors know where there client’s stand when it comes to the TFSA.
2 Comments
  • K Toews 2014-11-10 2:58:42 PM
    To assist your clients in determining their contribution room, pass along this CRA phone number: 1-800-267-6999 (press 1 for English), then press 6 for TFSA info, press 2 to find out the contribution room. The client will need to input their birthdate, SIN, and info from one line of last year's tax return. It's a very simple process.
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  • Will Ashworth 2014-11-12 11:47:22 AM
    That's very helpful, K Toews. Thanks very much for the input.
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