BMO Financial Group
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BMO Financial Group

November 06, 2014 06:00 ET

BMO Annual TFSA Report: Contributions Expected to Rise 34 Per Cent

- Canadians hold an average of $17,490 in their TFSA, with nearly half using their account for retirement savings

- Only one-in-five Canadians are aware of the $5,500 maximum annual contribution to a TFSA

- One-in-ten TFSA holders have over-contributed in the past, costing an average of $412.50 in penalties

TORONTO, ONTARIO--(Marketwired - Nov. 6, 2014) - According to the 5th Annual BMO Tax Free Savings Account (TFSA) Report released today, Canadians expect to contribute an average of $4,884 to their TFSA by the end of 2014, an increase of 34 per cent from last year.

However, while contributions are increasing, many Canadians remain unfamiliar with the rules of holding a TFSA. The survey, conducted by Pollara, revealed:

  • While 66 per cent claim to be knowledgeable about TFSAs, only 22 per cent correctly identified the $5,500 contribution limit, and three quarters (77 per cent) are unfamiliar with the over-contribution penalties
  • Overall, one-in-ten TFSA holders say they have over-contributed to their account in the past, costing an average of $412.50 in penalties
  • TFSA holders cite not understanding the rules (46 per cent) and losing track (33 per cent) of their account as the primary reasons for over-contributing

"There are many upsides to using TFSAs for a variety of savings and investing goals, most notably its flexible access to funds - uncommon among registered savings plans," said Ryan ffrench, Director, Term Investments, BMO Financial Group. "However, this benefit, if not understood or monitored on a regular basis, can also create challenges and end up costing investors if funds are re-contributed to the account incorrectly."

Mr. ffrench noted that those who withdraw funds after contributing the maximum amount allowed to a TFSA must wait until the following year to contribute again, otherwise they will incur a tax penalty. However, these withdrawal amounts will be added to their contribution room the following year.

Number of TFSA accounts remains stable with more intending to invest the maximum contribution amount in 2014

According to the report, use of TFSA accounts has remained stable since last year, with 48 per cent of Canadians having an account. Moreover:

  • On average, Canadians have over $17,000 in their TFSA accounts ($17,490)
  • The investment mix in the accounts has also remained constant since last year. TFSAs are still primarily made up of cash (60 per cent), followed by mutual funds (25 per cent) and GICs (20 per cent)
  • TFSAs continue to be used most commonly for retirement savings (48 per cent) and emergency funds (43 per cent), followed by using it as savings for a major purchase (25 per cent up from 19 per cent last year) and saving for a vacation (19 per cent up from 14 per cent last year)
  • The means of contributing to TFSAs remain the same this year, with more than half (56 per cent) making lump sum contributions, while one third (33 per cent) making regular contributions
  • More than one fifth of TFSA contributors plan to contribute the maximum amount of $5,500, up from the 18 per cent who contributed the maximum last year

Regional Breakdowns

Regions
National ATL QC ON MB/SK AB BC
Planned Contribution for 2015: $4,884 $4,497 $2,881 $5,255 $4,330 $5,086 $6,929
% who report over-contributing: 12% 16% 11% 15% 13% 12% 7%
Average total TFSA holdings: $17,490 $20,644 $16,152 $16,634 $16,262 $19,872 $19,356

TFSAs at a Glance

TFSAs allow Canadians to earn tax-free investment income to meet their savings needs. Key benefits of this registered plan include:

  • No minimum contribution required to open an account
  • Investors pay no income tax on investment returns earned in the account
  • There are no taxes payable on funds withdrawn
  • TFSAs can hold a wide range of investments
  • The federal government recently raised the annual contribution limit for a TFSA from $5,000 to $5,500

For more information on BMO's Tax Free Savings Account, please visit a BMO branch or online at www.bmo.com/home/personal/banking/bank-accounts/tax-free-savings.

Results cited in this release come from a Pollara survey with an online sample of 1,003 adult Canadians, conducted between October 7th and October 9th, 2014. The margin of error for a probability sample of this size would be ± 2.7%, 19 times out of 20.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified financial services organization based in North America. The bank offers a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers. BMO Financial Group had more than $586 billion in total assets and approximately 47,000 employees at July 31, 2014.

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