BMO Releases TFSA Report: Canadians Remain Unaware of Investment Options

Expert Advice Provides Clarity to Help Canadians with Financial Decisions

TORONTO, Dec. 9 /CNW/ - Today BMO released a report on the Tax Free Savings Account (TFSA), which revealed that Canadians remain unaware of the investment options available to them for the funds held in their TFSAs, even as the TFSA approaches its one-year anniversary.

Dr. Sherry Cooper, Chief Economist, BMO Capital Markets, released the Report at a roundtable event today.

    
    Highlights from the report include:

    -   Canadians are proving to be very conservative when investing their
        TFSA funds. 94 per cent of assets held in bank TFSAs are in the form
        of savings account deposits or term deposits. Many savers appear to
        be unaware that they can invest their TFSA contributions in stocks,
        bonds and other financial assets, as well as in short-term deposits
        and Guaranteed Investment Certificates (GICs).

    -   Canadian savings rates have risen sharply, similar to all major
        industrial nations. This rise largely reflects the attempt to rebuild
        wealth and assure financial security following the Great Recession.
        The introduction of the TFSA has proved to be an attractive and
        popular way for more prudent households to feather their nest egg.

    -   The introduction of the TFSA is the most significant change (dealing
        with savings) to Canada's tax system since the introduction of the
        Registered Retirement Savings Plan (RRSP) in 1957.

    -   In general, the TFSA should be a more attractive investment option
        than an RRSP for two groups: those in a low-income stage of their
        life (such as students and young couples without kids), who have
        excess cash after paying their bills and drawing down debt. And for
        affluent people who have money to save after maxing out their RRSP
        contribution. The report finds that TFSA contributors tend to be
        older and more affluent, suggesting younger people are using whatever
        savings they have to first pay down debt.

    Tina Di Vito, Director, Retirement Strategies, BMO Financial Group,
provides advice for Canadians on TFSA strategies:

    TFSAs Are Ideal Investment Choices For Younger and Low-Income Canadians

    -   Younger people who are early in their career can benefit from waiting
        to use RRSP contribution room until they have a higher marginal tax
        rate. Instead, they can contribute to a TFSA for tax-free income and
        later, when they are subject to a high marginal rate, withdraw the
        funds from the TFSA to jump-start their RSP. Down the road, they can
        re-use the TFSA contribution room created by the withdrawals.

    -   For those individuals with low income or high pension adjustments,
        the $5,000 annual contribution limit for TFSAs will still be
        available even though their RRSP contribution limit may be low or
        zero. In this case, a TFSA can be used to supplement RRSP
        contributions.

    Consider TFSAs As A Supplement to RRSPs For Customers With Higher Income

    -   Individuals with high cashflow can maximize their RRSP contribution
        and then also fund their TFSA to supplement retirement savings.

    -   Individuals who may not have enough income to do both can consider
        maximizing their RRSP contribution each year to maximize current
        income tax savings. And, the resulting tax refund can be put towards
        an annual TFSA contribution.

    -   Income splitting is much easier with TFSAs. There are fewer
        restrictions compared with a spousal RRSP.

    For First Time Homebuyers, TFSAs Can Be An Alternative Source Of Funds Or
Used To Supplement RRSPs

    -   First time homebuyers can tap into their RRSP assets under the Home
        Buyers' Plan to come up with their down payment. With their tax-free
        status, TFSAs can also be used for this purpose and offer more
        flexibility when replenishing the TFSA assets. Under the Home
        Buyers' Plan, the planholder is required to re-contribute to the RRSP
        over a period of 15 years, whereas for the TFSA no repayment is
        required and the amount of the withdrawal is added to future TFSA
        contribution room.

    -   For individuals who are not eligible to use the Home Buyers' Plan,
        the flexibility of the TFSA means that it can be used to purchase a
        home, for renovations or other home improvements.

    TFSAs Provide Retirees With Additional Opportunity To Shelter Income After
They Turn 71

    -   TFSAs help older Canadians in two ways. First, they can continue to
        contribute to TFSAs after they are no longer eligible to contribute
        to an RRSP. In addition, if retirees are required to take more income
        than they need from a RIF, they can contribute to a TFSA out of the
        excess and thus continue to shelter future investment earnings from
        tax.

    The complete TFSA report can be found at www.bmocm.com/economics
    

SOURCE BMO BANK OF MONTREAL

For further information: For further information: For news media inquiries, please contact: Kasia Lech, Toronto, kasia.lech@bmo.com, (416) 867-3996; Ron Monet, Montreal, ronald.monet@bmo.com, (514) 877-1101; Laurie Grant, Vancouver, laurie.grant@bmo.com, (604) 665-7596; Internet: www.bmo.com

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