9 tax-free savings tips

When the Tax-Free Savings Account came out, we all jumped up and down clapping our hands together in glee.



Online only.


The rules for TFSAs were hashed and re-hashed hundreds of time in the media and consumers STILL managed to go offside. Wow! For those of you who still haven’t opened up your TFSA, here are 9 things you need to know.

1. You must be a Canadian resident and 18 years of age or older. (I actually saw an article recently where someone advised parents to open one of these up for this kids. Not until they’re 18!)

2. You can save up to $5,000 every year. Limits are going to be indexed to inflation in $500 increments, so watch for increases in limits over time. You can have as many TFSAs as you wish, but the $5,000 contribution limit applies across all accounts.

3. Contributions are NOT tax deductible.

4. All the income earned inside a TFSA is earned tax-free.

5. If you can’t save $5,000 this year, your contribution room can be carried forward to future years. So if you can only stick $2K in for 2011, in 2012 your limit will be $8,000 ($5K for 2012 and $3K carried forward from 2011.)

6. You can take money out of your TFSA at any time for any purpose, without losing the contribution room. HOWEVER if you take money out in one year, you CANNOT put it back until the following year.

7. You can hold any investment you can buy for your RRSP inside your TFSA, including stocks, bonds, GIC, and mutual funds.

8. You can, and should, make a beneficiary designation (everywhere in Canada except Quebec) on your TFSA to avoid probate costs.

9. You can contribute to your spouse’s TFSA without affecting your own contribution limits and without any tax attribution.

Follow the rules carefully, especially the one about taking money out of a TFSA and then putting it back in. If you try to return money to your plan too soon and you’ve already reached your limit for the year you’ll be hit with an over-contribution penalty. And while the government has been somewhat gracious so far, don’t expect them to have an endless amount of patience with folks who claim, “But, I didn’t know…”

4 comments on “9 tax-free savings tips

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  2. If I had a tabulation like yours shown above in April of 2010 I would not be paying a penalty of 1729.48 to the CRA for over contribution in the 2010 calendar year; especially #6! The banks and other financial institutions never had printed rules to offer savers.My financial advisor thinks he understood the rules but took the 10,000.00 I withdrew from my ING T.F.S.A. and put it in mutual funds within weeks making me over-contributed by 10,000.00 in 2010. He should have waited until 2011. I then thought I could return the 10,000.00 when I could find the money and put 10,000.00 back in ING, for a total over-contribution of 20,000.00 +/- The BIG question here is why didn't the Ministry of Revenue ensure we all were advised of the rules in a full page announcement in the newspapers, or at least print up an information flyor to be distributed by any institution accepting funds for a T.F.S.A.?Yes it is my responsibility to know the law but this program was introduced as being flexible which it is not!


    • I made the same mistake and received notice in the mail that I was required to pay a penalty. I wrote a letter to the CRA and explained that i had not understood the deposit / withdrawal rules as they applied to a tfsa. They reversed their decision and I did not pay the penalty. Of course the initial deposit amounts were smaller but the penalty assessed was disproportionately greater than any income I had earned in the tfsa.


  3. Please explain #7.


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