Nearly half of canadians think someone else is responsible for tracking withdrawals and contributions to their tax-free savings accounts
ING DIRECT survey points to surprising gaps in Canadians’ understanding of TFSA rules
Toronto, ON – January 5, 2012 – A recent survey by ING DIRECT finds many Canadians don’t understand the rules of the Tax-Free Savings Account (TFSA). According to the Angus Reid Public Opinion poll commissioned by the bank, 23% of Canadians said their bank was responsible for tracking their TFSA contributions and withdrawals. Another 12% think it’s the responsibility of the government, while 7% said their advisor is responsible for keeping track of TFSA transactions.
The same survey also found Canadians have a vague idea (37%) or don’t understand how the TFSA works (14%), while 13% of Canadians said they don’t know what a TFSA is.
"The Tax-Free Savings Account is an invaluable tool when it comes to saving money for the future, but unfortunately many Canadians are unclear about the rules, which can lead to over-contribution mistakes and frustration for savers," said Peter Aceto, President and CEO of ING DIRECT Canada. "Like any registered product, there are certain rules when it comes to investing in a TFSA, but it takes minimal effort to familiarize yourself with the ins and outs of the account."
Here are some dos and don’ts to keep in mind when managing your TFSA:
DO keep track of your own contributions and withdrawals
One of the benefits of a TFSA is the ability to re-contribute money you’ve withdrawn from your account, though the re-contribution cannot be made until the following year. Thirty-one per cent of Canadians say they’ve made a withdrawal from their TFSA since they started saving. If you’re making multiple contributions and withdrawals to your TFSA, it’s important to keep records of your transactions so you don’t end up over contributing to your account and being charged a tax penalty.
Remember that although the Canada Revenue Agency notifies you of your remaining TFSA contribution limit on your Notice of Assessment, it is your responsibility to track your withdrawals and contributions so you don’t exceed your annual limit.
DON’T treat your TFSA as a regular savings account
If you constantly make deposits and withdrawals to and from your TFSA, not only could you face over-contribution, but you also lose the opportunity to benefit fully from compound interest – interest that is also tax-free.
DO manage multiple TFSAs wisely
Over a quarter of Canadians (27%) think you can only have one TFSA, but Canadians can have multiple TFSAs, with more than one financial institution. Keep in mind the annual contribution limit is $5,000 per year, for all of your accounts combined, so with multiple TFSAs, it’s even more important to keep detailed records of contributions and withdrawals to prevent exceeding your limit.
DO focus on the "tax-free" part, not just the "savings account"
The term tax-free "savings account" is somewhat of a misnomer since Canadians can hold a variety of investments within a TFSA, including GICs, mutual funds, ETFs, stocks and bonds.
Almost half of Canadians (47%) have their TFSA funds invested in a savings account, followed by mutual funds (19%), GICs (13%) and stocks/bonds (10%). To get the best bang for your buck, look for investment options with low fees. ING DIRECT’s Streetwise Funds® have a 1.07% MER with no minimums, no commissions and no hidden fees. And because the money in your TFSA is earning interest tax-free, you won’t have to pay income tax on the earnings you may make through your mutual fund investments.
DO understand the tax implications of a TFSA
Over a third of Canadians (35%) said they were unsure whether or not they receive a tax deduction for contributions to a TFSA, while 8% believe they do. Unlike an RRSP, contributions made to a TFSA don’t result in a tax deduction.
One in 10 Canadians believe they have to pay tax when withdrawing funds from a TFSA, while a third of Canadians said they weren’t sure. Contrary to RRSP rules, you don’t have to pay income tax when you withdraw funds from your TFSA. In addition, TFSA withdrawals don’t affect your ability to qualify for income-based Federal benefits, so you’re not penalized for saving in a TFSA.
About ING DIRECT
ING DIRECT is Canada's lead ING DIRECT bank with over 1.7 million Clients and more than $37.6 billion in total assets. ING DIRECT gives the power of saving to all Canadians by offering high-value, simple products such as high interest savings accounts with no fees or service charges, low rates on mortgages and a no-fee daily chequing account that actually pays interest. Low cost, index based mutual funds are sold through ING DIRECT Funds Limited. ING DIRECT has been operating in Canada since 1997 and paid more than $4.5 billion in interest to Clients. ING DIRECT is open for banking 24 hours a day, 7 days a week, at ingdirect.ca, on mobile devices at m.ingdirect.ca or by calling 1-800 ING DIRECT (1-800-464-3743).
Follow Peter Aceto on Twitter at: Twitter.com/CEO_INGDIRECT
About the Survey
From September 20 – September 21, an online survey was conducted among 1668 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error—which measures sampling variability—is +/- 3.1%, 19 times out of 20. The results have been statistically weighted according to the most current education, age, gender and region Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
®The Streetwise Funds are a registered trademark of ING Bank of Canada, used under license.
ING DIRECT Streetwise Funds are exclusively offered by ING DIRECT Asset Management Limited. ING Direct Funds Limited is the principal distributor of ING DIRECT Streetwise Funds. ING Direct Funds Limited offers mutual funds across Canada. ING Direct Funds Limited and ING Direct Asset Management Limited are wholly-owned subsidiaries of ING Bank of Canada. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer, and are not guaranteed by ING Bank of Canada, or any other Canadian financial institution. 1.07% Management Expense Ratio (MER) as at June 30, 2011.