Educate clients about TFSA stipulations

TFSAs are effective saving tools, but clients don’t always understand them.

The money invested in a TFSA can be withdrawn anytime, and used for any life event including travel, education, and buying a house or car, says Hélène Marquis, regional director of Wealth Advisory Services at CIBC Private Investment Counsel.

“The government doesn’t worry about what you’re doing with that money,” she adds.

“Contributions made to TFSAs are made with capital that’s already been taxed. There’s no further taxation when money is taken out of the regime in the future.”

Read: TFSA holders aren’t investing

Clients taking money out of an RRSP, on the other hand, may face steep taxes, meaning they should only take out funds for first-time home purchases and retirement.

Read: RRSPS can be a tax burden

But there are a few caveats to tell clients about.

First, Canadian residents have to be at least 18 years old to take advantage of TFSAs, and remind them the annual allowable contribution has just risen to $5,500.

Read: Vik’s Pick: More TFSA room, more savings?

Additionally, the accounts are only tax-free while the holder is alive.

“[Afterwards] the funds start to be taxable,” says Marquis. They could generate taxation in the deceased’s estate, so make sure clients ask experts how to handle the account while writing their wills.

Read: TFSAs and estate planning

Though the account can be transferred directly to a spouse or common-law partner—joint TFSAs don’t exist—“there may be some tax form to fill out in a certain amount of time if you want to make sure you get the full rollover,” she adds.

Read:

Set-and-forget investments

Define RRSP, TFSA benefits for clients

Thousands break TFSA tax rules

Over-contribution retribution