FAQs on Tax-Free Savings Accounts
If the number of questions about Tax-Free Savings Accounts is any indication, the TFSA is going to be very popular with Canadians. Here are some popular questions that are asked regularly:
- Can I have more than one TFSA account? Does the contribution room apply across all TFSA accounts?
You can have as many TFSA accounts as you wish. However, your contribution room applies across all accounts. For example, say you have two TFSA accounts at Bank A and Bank B and your 2009 TFSA contribution room is $5,000. You are allowed to divide your contribution between your two accounts however you wish (you can contribute $2,000 to the Bank A account and $3,000 to the Bank B account) but the total contributions across all accounts cannot exceed $5,000.
- Do I have to contribute to a TFSA every year?
No. Unused TFSA contribution room will be carried over to the next calendar year. For example, assume that Tina was unable to make any TFSA contribution in 2009. Her TFSA contribution room will be $10,000 in 2010 ($5,000 unused contribution from 2009 + $5,000 new contribution room for 2010).
- How do TFSA withdrawals affect my contribution room?
When you withdraw money from your TFSA account, the next calendar year’s TFSA contribution room is bumped up by the withdrawal amount. Let’s take an example. Joe makes a $5,000 contribution to his TFSA account at Bank A in January 2009. Facing a cash shortage, he withdraws $3,000 in April 2009. His contribution room for 2009 is unchanged (i.e. he cannot make any more contributions to any of his TFSA accounts in 2009 because he has used up his entire contribution room) but his TFSA contribution room for 2010 is $8,000 ($5,000 annual contribution limit plus his 2009 withdrawal amount of $3,000).
- Can I borrow to invest in a TFSA? Is the interest paid on money borrowed to make TFSA contributions tax deductible?
Just as you can borrow money to make contributions to a RRSP, you can borrow to contribute to a TFSA. Again, just like RRSPs, interest paid on TFSA loans is not tax-deductible.
- What happens when you make in-kind contributions to a TFSA? Is it similar to “deemed disposition” for RRSPs?
Yes. When you transfer an asset to a TFSA, it is deemed to have been sold at current market prices. You’ll have to pay tax on capital gains but capital losses will be disallowed.
Readers Cogsy and Perplext pointed out that the fee schedule for TFSA accounts with TD Waterhouse is now available. The annual administration fee is $50, which is waived for clients who (a) sign up for eServices or (b) have household accounts valued at $100K or more. Other fees for TFSA accounts: (a) First withdrawal is free. Subsequent withdrawals are charged a fee of $25. (b) Account termination or transfer: $125. (c) Partial transfer (per asset, to a maximum of $125): $25 and (d) Swap fee: $45. If you have an online link to TD Waterhouse’s fee schedule, please share it in the comments.