Fewer than one-half (44 per cent) of Canadians are making the maximum contribution of $5,000 per year to their tax-free savings account (TFSA), according to a BMO Bank of Montreal survey. They plan to contribute an average of $3,778 for 2012.
However, 57 per cent plan to contribute the maximum allowable amount within the next five years.
Since its introduction in 2009, 39 per cent of Canadians have opened a TFSA, found the survey of 1,000 people. And 29 per cent of those who do not have a TFSA plan to open one, compared with 22 per cent in 2011.
However, since the TFSA's introduction in 2009 by the federal government, a lack of knowledge about it persists. While 60 per cent of Canadians said they are knowledgeable about the savings and investing vehicle, only 44 per cent correctly identified the annual maximum contribution limit of $5,000.
Furthermore, 37 per cent of Canadians said they do not know what investments can be held within a TFSA, and the majority of TFSA holders are unaware that bonds, stocks and exchange traded funds (ETFs) can be included in their account.
The most common TFSA investment is cash, with 60 per cent including cash in their TFSA, followed by mutual funds (26 per cent) and guaranteed investment certificates (GICs) (25 per cent). The least common are stocks (18 per cent), bonds (12 per cent) and ETFs (three per cent), found BMO.
•Canadians aged 18 and older can contribute up to $5,000 per year into a TFSA. Any unused contribution room from the previous year can be added to the contribution room for the following year. In addition, any withdrawals can be re-contributed the following year without affecting the annual contribution limits.
•A person can hold the same investments in a TFSA as you could in a registered retirement savings plan (RRSP), including GICs, bonds, cash, mutual funds and stocks.
•Contributions to TFSAs are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable.
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