TFSA Benefits and Pitfalls

Posted: March 1, 2013

The 2013 annual contribution limit has been increased to $5,500 from $5,000. If you never set up a TFSA account yet, you can potentially contribute upwards of $25,500 and insure that it grows on a tax free basis. If you are currently saving money outside of a TFSA, consider setting up a TFSA; you have nothing to lose!

If you want to learn more about the TFSA and how it works click here

Why Should I Open a TFSA Account?

1. Tax Free Income – your money grows on a tax free basis

2. Withdrawals can be re-contributed !

Using my example above, my TFSA will allow me to re-contribute the $40,000 I just pulled in the following year (i.e. in 2021)

3. No Attribution Rules allows for Income Splitting

4. Income in TFSA doesn’t count as income for gov’t benefits and tax credits

Income earned in a TFSA has no impact on government benefits and credits that depend on income (this includes OAS, The Guaranteed Income Supplement (GIS), the HST Tax Credit, the Canada Child Tax Benefit, EI Benefits and credits that are income dependent such as spouse amount, age amount)

TFSA Pitfalls

One of the most common pitfalls to watch out for is over-contributing into the TFSA. Over-contributing will lead to a penalty of 1% per month on the excess contributions. Therefore, it is important for you to make sure you have enough unused contribution room before making a contribution. You can find out your unused contribution room by contacting CRA (1-800-267-6999).

If you keep track of your annual contributions and withdrawals you can use our free interactive online TFSA Contribution Room Calculator to ensure you have sufficient room.

Stay tuned for our next post where we will be discussing some of the most FAQ’s regarding TFSA

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