What You Need to Know About TFSAs

Note: You should definitely consider a TFSA as a tool to help build long term wealth and not as a savings account.

Who can open a TFSA

Any Canadian 18 or older who has a valid Social Insurance Number. If you are considered a non-resident please refer to the following link Non-residents of Canada. Non-residents will be subject to a 1% monthly penalty on contributions.

Contributing to a TFSA

Annual contribution limits are set each year by the Government of Canada. You are allowed to give money to your spouse or common-law partner to make TFSA contributions without attribution rules applying. TFSA contributions are not tax deductible.

The TFSA first started in 2009 and the following tables shows the annual contributions going back each year. You are eligible to carry forward all contribution amounts from any year you were at least 18 years of age.

The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.

Your contribution room can also be affected by any withdrawals you make from the TFSA. This is discussed in the section below.

Please note: if you over contribute to your TFSA, the Government will charge you a penalty of 1% per month. To find out exactly how much room you have in your TFSA you can log on to your My CRA Account.

Making withdrawals from your TFSA

You can withdraw money from your TFSA anytime tax free. Any withdrawals you do make will be added back to your total contribution room. However, the withdrawal amount you do make will not get added back to your contribution room until the start of the following calendar year.

Another bonus of the TFSA is that it will not reduce other forms of income tested benefits. This includes Old Age Security (OAS), the Guaranteed Income Supplement (GIS), and Employment Insurance (EI).

Designating a beneficiary or successor holder

Since the TFSA is a registered account, you are able to designate a beneficiary or in the case of a spouse or common-law partner a successor holder.

Designating a spouse or common-law partner

You can only designate your spouse or common-law partner as successor holder of your TFSA. Upon death the surviving spouse will become holder of the TFSA and benefit from all tax free income and growth earned (regardless of the surviving spouses contribution room). This will not affect the surviving spouses current TFSA contribution limits. The surviving spouse can then choose to consolidate the TFSAs into one account.

Designating a beneficiary

The designated beneficiary is entitled to receive the proceeds of the TFSA tax free up until the date of death.

Important: If your spouse or common law partner is designated as a beneficiary as opposed to a successor holder, upon your death they would not be eligible to roll over the proceeds of your TFSA into theirs.

Looking To Learn More, Continue Reading.

• All Your FAQs About RESPs

• What You Need to Know About RRSPs

• What You Need to Know About RRIFs

• Setting Up a My CRA Account

Disclosure: The information on this site should not be considered advice or solicitation to buy or sell any securities. Please see my Disclosure Page for a full disclaimer.