So what's all this talk about over-contributing to a tax-free savings account (TFSA)? It's important to find out everything you need to know about TFSA overcontributions to avoid problems later on.
What is the annual TFSA dollar limit?
The limit for 2016 is $5,500.
How do you figure out your TFSA contribution room?
Your annual TFSA contribution room is made up of three things:
1. the annual TFSA dollar limit;
2. any unused contribution room from previous years; and
3. any withdrawals you made during previous years (any direct transfer is not included).
What happens if you overcontribute to your TFSA?
The Canada Revenue Agency (CRA) charges a tax of 1% for every month that the excess contributions stay in your account. The first time this happens, you will receive a notification in the mail identifying your excess contribution situation. An indirect transfer from one TFSA to another is also considered a contribution.
How can you check your contribution room?
You can keep track using the CRA's My Account self-service portal. Simply log into My Account and you'll be able to:
1. check your TFSA contribution room;
2. make sure your TFSA is registered with the CRA; and
3. review any transactions within your TFSA.
It's your responsibility to manage your TFSA contributions and withdrawals, but your financial institution can help you too.
How can you fix an overcontribution?
If you received a TFSA notification that you overcontributed, you might have to pay tax on the excess amount. If you withdraw your excess contributions as soon as possible, this will help reduce the extra tax you have to pay. Learn about the TFSA rules and guidelines and follow them, to help save you time and money.
