Tax-free savings accounts (TFSA) may be increasingly popular, but they also have a lot of Canadians scratching their heads.
Forty-eight per cent of Canadians have a TFSA, up from 23 per cent in 2012, according to Bank of Montreal’s recently released Tax Free Savings Account (TFSA) report. However, there’s confusion surrounding the details: the poll found that just 19 per cent of Canadians know the annual contribution limit, 10 per cent have overcontributed since opening an account, and only 11 per cent can correctly identify the various types of investments that are eligible to be held within a TFSA. Read More…
Wow, just wow that the study reveals that most people still dont know much about it. What people are they surveying. Here in Ontario everyone not only knows about it but routinely contribute to it.
The problem is people think its just for savings. When you walk into any bank they have big signage saying to open a tfsa to save big. You never see any other talk about using it for better alternatives.
I didn’t know there were restrictions on what could be inside this registered account. From what it lists though it still semes like it can pretty much hold anything but it is just prudent to be selective since TFSA is best for tax-inefficient vehicles so as to maximize your other types of accounts with other more tax-friendly things.
If you’ve maxed out your RSP contributions and TFSA then personally i would not continue to keep it in banks savings accounts since the return you would get is pennies compared to a relatively safe route (and higher return) in an investment account. Just know your risk tollerance. My guess is you want it safe so i’d go with REIT and Bonds for the account. But be warned that interest rates may be going up and this has an inverse effect on Bonds and REIT.
But then remember that REIT and Bonds are all about interest income which is best held in TFSA since that type of income is taxed at your marginal rate (100% inclusion). So even if the underlying stocks tumble as the Bank of Canada interest rises the steady income may offset the loss and continue to give you a descent return — at least a return equal to or higher than what you were getting with your savings account at ABC bank.
I totally agree that most poeple have no clue about TFSA. They just know since it has Savings in its name that it is just for that and worst that they either dont take full advantage of it over overcontribute and take out as if it is a standard bank savings account.
I didn’t know you could give your contribution limit to your spouse. Interesting. Something i might explore soon.
I have thankfully maximized my tfsa but sadly i did so in a high-interest savings account and now see my friends earning good roi in an investment account at Questrade 🙁 Does it make sense to switch from a savings account and move it all to stocks instead?
When is a good time to start contributing to TFSAs? I am 18 now and if i understand since the inception was back in 2009 this would mean i have $31K in contribution space?