TFSA woes

[Cooked Rice]

I signed up for a TFSA last spring. I right away put in $5000, the most you're allowed in a year.

Throughout the year I withdrew money a couple times as I needed to buy some larger ticket items, and ended up putting money back in. But the total balance never exceeded 5000.

Filed my tax return for the year... This is where I get bent over...

I guess you're not allowed taking money out unless your balance exceeds 5000? I guess I got tax'd on every penny I put in after my initial deposit of $5000.

Example. I took out 2200 at one point. Balance = 2800 (not taking into account interest earned as it doesn't come into affect). I then put 2200 back in a couple weeks later when I got paid again. That was last July.

Come my tax return, I get a request saying I owe $146.56 (1% of $14,656) for excess contributions to my TFSA, even though the balance never exceeded 5000 at any time in the year.

Can someone chime in and help clarify how this works?

[Meback]

Hey, look in the finance section. I did a post regarding the same thing. I got bent over too.

[dezmarez]

You can only contribute $5000 total any time for the year.

Contribution room is earned back the following year from withdrawals done in one year...

Example...

5000 contribution....max limit reached

2000 withdrawal

2000 re contribution...you have now over contributed 2000...

you are now taxed at a rate of 1% per month on excess contributions...

for an annual total rate of 12%...


2nd Example...


4000 contribution... 1000 left in room

2000 withdrawal...

2000 contribution... you now have over contributed 1000 and will be taxed at 1%/month for over contribution

[ExtraSlow]

Sounds like a lot of people didn't understand this. I saw an article in the Herald about this exact subject.

[delled]

There was a story on CTV about this problem, it happened to a lot of people and I think you can get relief from the penalties, if it is not too late.

ctv story

[kaput]

.

[JordanAndrew]

Good news for people who over contributed in 2009, the government is giving a tax break for the first year of the TFSA launch.

http://ca.news.finance.yahoo.com/s/2...-accounts.html

[Cooked Rice]

Originally posted by JordanAndrew
Good news for people who over contributed in 2009, the government is giving a tax break for the first year of the TFSA launch.

http://ca.news.finance.yahoo.com/s/2...-accounts.html

Ah good to know. Odd they are sending requests for payment when they are giving a break. I'll give them a call tomorrow and see what they can do for me.

[Meback]

wtf, I just paid em pigs!

[benyl]

More news:

http://www.cbc.ca/consumer/story/201...confusion.html

[Kloubek]

It is their own fault people are confused. When the TFSA was advertised, it was said that if you withdrew, you could redeposit up to your 5000 per year. But they failed to mention you would be penalized for it.

Load of crap, if you ask me. Why would withdrawing it and re-depositing it make any difference? Ultimately, you're not really changing anything....

[lint]

Why would withdrawing and re-depositing into your RRSP make any difference? Ultimately you're not really changing anything...

[Cos]

The thing I find is crap is that I understood the rules properly but they are letting people of with it. If I could have seen the future I would have over contributed and said I didnt know either. Bunch of BS for those of us who actually researched a product.

[-relk-]

Originally posted by lint
Why would withdrawing and re-depositing into your RRSP make any difference? Ultimately you're not really changing anything...

It isn't but from my understanding the TFSA stands for tax free savings account. I don't know much on the issue but it seems like they brought this in for people to start saving instead of putting money in and taking it out and putting more in whenever they want. Correct me if i am wrong here as i don't know a whole lot on the subject and it is just from my own speculation.

EDIT: From a simple google search (the first link on the list actually) i was able to find this

How do TFSA withdrawals affect my contribution room? When you withdraw money from your TFSA account, the next calendar year’s TFSA contribution room is bumped up by the withdrawal amount. Let’s take an example. Joe makes a $5,000 contribution to his TFSA account at Bank A in January 2009. Facing a cash shortage, he withdraws $3,000 in April 2009. His contribution room for 2009 is unchanged (i.e. he cannot make any more contributions to any of his TFSA accounts in 2009 because he has used up his entire contribution room) but his TFSA contribution room for 2010 is $8,000 ($5,000 annual contribution limit plus his 2009 withdrawal amount of $3,000).

Coles: If you put 5000 in the first year, then take out 3000, you can't contribute anymore but have 8000 (5000+3000) for the next year.

[JordanAndrew]

Originally posted by Cos
The thing I find is crap is that I understood the rules properly but they are letting people of with it. If I could have seen the future I would have over contributed and said I didnt know either. Bunch of BS for those of us who actually researched a product.

I feel the same way. I could have contributed a heck of a lot more. When I opened the account for my TFSA I made sure I understood what I was getting into so I won't lose any money.

[Bondar]

Original Post Removed. (Please read the Forum Rules and Terms of Use before posting again, or risk getting banned).

[gyu]

Does transferring money from one TFSA to another affect contribution room? I had some money transferred from my RBC TFSA to my Questrade TFSA and now I want to add a bit more but want to make sure I don't overcontribute. I spoke with an RBC bank advisor and he said transferring does add to your contribution, but someone at Questrade said it does not, who is right?

Thanks

[kenny]

If the TFSA transfer is done as an actual transfer then it WILL not count against your annual contribution. If the funds are withdrawn and then re-deposited then it WILL count as contribution.

[LongCity]

Speaking of TFSAs, which is the best bank to invest in? I was thinking of opening one soon and wondering which offers the highest interest rates with the least hassle and problems?

[ExtraSlow]

If you are talking about plain savings accounts, then I'm a big fan of ING. Been with them for a few years.
Many people on beyond will recommend more aggressive strategies with your TFSA money. It's been covered a few times so i won't go over it here.