Tax Free Savings Accounts (TFSAs) are a popular savings vehicle that allows you to make contributions and withdraw money at any time, tax-free. However, if you have one of these accounts, you could be making mistakes or missing out on opportunities. For example, this year alone, the Canada Revenue Agency (CRA) sent out almost 55,000 notices resulting in expensive penalties for inadvertent over-contributions.
What You Might Not Know
Here are some little known facts about TFSAs:
- TFSAs can be invested in a variety of ways, including mutual funds, stocks and GICs.
- Some people are unaware they have a TFSA. It is easy for regular savings accounts and TFSAs to be confused, and CRA has not yet been able to include TFSA information on taxpayers’ notices of assessment (NOAs).
- If you have more than one TFSA, you can transfer the funds in one directly to another account without the transaction being considered a withdrawal.
- You can find out your TFSA contribution history by logging into the CRA website. Or you can ask your accountant to get you the information.
- You can make a withdrawal from your TFSA, then later re-contribute the funds, but not in the same calendar year.
- If your spouse is named as a beneficiary on your TFSA and you pass away, the amount included in your TFSA can be transferred to your spouse’s TFSA without affecting the amount they’re allowed to contribute to their account in the future.
- You can also name a non-spouse beneficiary, and they would receive the funds tax-free, although they can only add it to their own TFSA if they have sufficient contribution room available.
- If you’re a U.S. citizen living in Canada, you have to report any income earned in your TFSA during the year to the Internal Revenue Service.
- The annual contribution level was raised from a maximum of $5,000 to $5,500 in 2013, and consideration is being given to raising it substantially in 2015.
TFSAs are more complicated than they may appear, but they are an effective investment and financial planning tool. Getting professional assistance with your TFSA decisions can help you make the most of the opportunities, while avoiding costly mistakes.
 “Common TFSA Mistakes.” Tax Corner 2013: n. pag. Print.