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Nearly three-quarters of Canadians (73%) consider themselves at least somewhat knowledgeable about TFSAs, finds a BMO survey, up from 70% last year.

Further, 82% of Canadians have a TFSA or plan to open one. The average annual contribution amount of $4,989 is also up from last year’s $4,592, and the number of Canadians maxing out their contributions is up 2%.

Still, there are knowledge gaps.

  • 34% aren’t aware that over-contributing will result in a penalty tax.
  • 42% believe that contribution limits are linked to income.
  • 45% aren’t aware of, or incorrectly identified, which investments are eligible to be put in TFSAs.
  • Just 25% correctly identified the maximum contribution amount of $5,500 in 2017; 35% weren’t aware of the amount at all.

Why aren’t Canadians putting more in their TFSAs? They cited not having the money to invest and needing money to pay for other things as the top reasons.

The top use for TFSAs among all age groups was as an an emergency fund. Millennials also leaned toward using the accounts to save for major purchases, while those aged 35 to 54 are more concerned with retirement savings.

Ryan ffrench, director, Term Investments at BMO Bank of Montreal, says an automated plan can help clients who struggle with prioritizing contributions. (Advisors should make sure the sum of the year’s automated contributions don’t exceed that year’s contribution limit.) He also suggests reminding clients that they can house investments such as mutual funds, term investments and ETFs within a TFSA to potentially obtain better returns than cash.

About the survey: Pollara Strategic Insights conducted an online survey between December 21 and 28, 2017, with an online sample of 1,500 adult Canadians. 

Also read:

Five things that can sink your clients’ retirement ship

Why to abandon, not expand, the RRSP Home Buyers’ Plan

4 in 10 Canadians have made withdrawals from RRSPs: survey

Originally published on Advisor.ca
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