Retirement Issues North of the Border

Contributions Remain High, But Canadians Still Puzzled by Tax Free Savings Accounts

 Less than a quarter consider themselves to be ‘very knowledgeable’ about TFSAs;
One-in-ten TFSA holders contributed more than their limit in 2015

TORONTO, ONTARIO–(Marketwired – Feb. 4, 2016) – While 55 per cent of Canadians have a Tax Free Savings Account and average annual contributions remain high, there is still confusion over how they work, what can be contained in them and the maximum contribution amounts, according to a report released today by BMO Bank of Montreal.

The report, conducted by Pollara, revealed that two-thirds of Canadians indicate they have some knowledge of TFSAs (67 per cent) and 17 per cent say they are ‘very knowledgeable.

Yet only 3 per cent of respondents were able to correctly answer eight basic true or false questions:

  • One-fifth (21 per cent) of Canadians correctly answered six or seven of the eight questions, and 14 per cent were not able to answer any
  • Only one-quarter (24 per cent) of Canadians correctly identified the maximum annual TFSA contribution limit of $5,500, which is a slight increase in awareness compared to the last two years (22 per cent in 2014, and 19 per cent in 2013)
  • The biggest improvement in Canadians’ knowledge of TFSAs is knowing that the annual contribution rate is not linked to their income (56 per cent were aware)
  • Canadians are least aware that there is an age limit on TFSAs, and that there is a monthly penalty for over-contribution (30 per cent and 23 per cent aware, respectively)

Spreading the Knowledge

“Over the last few years the use of TFSA investments has continued to climb. Given that growth, it is important that Canadians be knowledgeable about the TFSA investment options available so they can maximize their benefits,” explained Ryan French, Director, Term Investments, BMO Bank of Montreal. “While retirement savings continue to be the main purpose for TFSA holders, our financial planners can explain the uses of a TFSA beyond a retirement fund and keep customers on track with their contributions to avoid penalties.”

Keeping track is important because the report revealed that 10 per cent of TFSA holders contributed over their limit this past year:

  • Just over one-quarter (27 per cent) of Canadians shared that their over-contribution was a result of not knowing the rules
  • The majority (85 per cent) of respondents believe their financial advisor should be tracking contributions for them
While retirement savings continue to be the main purpose for TFSA holders, our financial planners can explain the uses of a TFSA beyond a retirement fund and keep customers on track with their contributions to avoid penalties

Most Canadians (65 per cent) are holding cash within their TFSAs, but Mr. ffrench advises that “contributing other investment types with faster potential for growth can be more beneficial.” After contributing the maximum amount to a TFSA, you must wait until the following year to contribute again to avoid penalties, but Mr. ffrench notes that any withdrawal amounts will be added to your contribution room for the following year.

BMO offers Canadians tips to avoid TFSA confusion:

A notable benefit of TFSAs is the flexible access to funds they offer, but these and other benefits will not be met if contributions aren’t managed to avoid penalties

  • The 2016 TFSA contribution limit is $5,500
  • To open a TFSA, one must be 18 years of age or older
  • The penalty for over-contribution is 1 per cent of the highest excess amount within a given month, and will be charged for each month that the excess amount remains in the account
  • TFSAs can hold both cash and investments, including GICs, stocks, mutual funds etc.
    A financial planner will help you determine your best contribution strategy




Survey results cited in the BMO TFSA Report are from online interviews with an online sample of 1,000 Canadians 18 years of age and older, conducted between January 8th and 11th, 2016. As a guideline, a probability sample of this size would yield results accurate to ± 3.1%, 19 times out of 20. Results have been weighted by age, gender and region to be representative of the Canadian adult population as a whole.
About BMO Financial Group
Established in 1817, BMO Financial Group is a highly diversified financial services provider based in North America. With total assets of approximately $642 billion as of October 31, 2015, and close to 47,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers and conducts business through three operating groups: Personal and Commercial Banking, Wealth Management and BMO Capital Markets.
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