Five Misconceptions Around The Tax-Free Savings Account

Whether or not you are one of the millions of Canadians who opened a Tax-Free Savings Account (TFSA) after it was introduced by the federal government in January 2009, make sure the following misconceptions don’t prevent you from enjoying full financial benefits.       

1. It's too late for me to open a TFSA.  It's never too late. As long as you're 18 years of age or older and a resident of Canada with a valid Social Insurance Number, you can open an account any time and contribute up to $5,000 a year, tax free.
2. I can't carry over unused contributions. Yes, you can. If you don't contribute the annual maximum of $5,000, the difference is carried forward. Say you could only invest $2,000 in 2009. In 2010, the remaining $3,000 would be added to your limit for a total available contribution room of $8,000. There is no time limit to carry forward unused annual amounts.
3. You can only invest cash in a TFSA.  Not true. While you can certainly contribute cash, you can also invest in guaranteed income certificates (GICs), bonds, mutual funds, and stocks. Just be careful that your total contributions for the year do not exceed your available contribution room.
4. I can only open one TFSA. Not true. You can have more than one TFSA as long as the total contributions in all of your TFSAs during the year do not exceed your available TFSA contribution room.
5. I’ll have to pay a lot of tax on TFSA assets after a holder dies. Not true. Generally, a TFSA beneficiary will not have to pay tax on payments received from a deceased holder’s account, up to the fair market value at the time of the holder’s death. Income earned by TFSA assets after the date of death is subject to tax except if the account is taken over by a surviving spouse or common-law partner who is designated as the successor holder to the TFSA.