Although 55% of Canadians possess a tax-free savings account (TFSA), the maximum annual contribution limit and the consequences of contributing too much are details that continue to confuse many Canadian investors, with some believing their financial advisors should help them avoid the latter situation, according to the results of a survey that Toronto-based Bank of Montreal (BMO) released on Tuesday.
BMO’s survey, which tested Canadians’ knowledge of TFSAs, indicates that most survey participants are unsure about maximum annual contribution limit, with only 24% accurately stating that the limit is $5,500. However, the research does note there has been a slight increase in awareness since 2014, when 22% of Canadians identified the annual contribution limit correctly.
Less than one-quarter (23%) of survey participants are aware that there is a monthly penalty for overcontributing to a TFSA. In fact, 10% of survey participants admitted they contributed too much toward their TFSAs this past year, with more than one-quarter of them (27%) directly attributing the action to not knowing the rules. However, the vast majority (85%) of those who overcontributed toward their TFSAs believe their advisors should be tracking contributions for them.
The majority of Canadians also seem to be confused about the age requirement for opening a TFSA, as only 30% are aware that there is one.
The fact that the annual contribution limit is not linked to a person’s income is something that does not need much explanation to many Canadians, as 56% are already aware of this.
Overall, the research indicates that only 3% of respondents correctly answered the eight true or false questions included in the survey. Approximately one-fifth (21%) of Canadians answered six or seven of the eight questions correctly and 14% were not able to answer any.
Pollara Strategic Insights conducted the survey on BMO’s behalf through online interviews with 1,000 adult Canadians from Jan. 8-11.