While 55% of Canadians have a TFSA and average annual contributions remain high, there is still confusion over how they work, what can be contained in them and the maximum contribution amounts, according to a BMO report.

The report reveals that two-thirds of Canadians indicate they have some knowledge of TFSAs (67%) and 17% say they are very knowledgeable. Yet only 3% of respondents were able to correctly answer eight basic true or false questions about the TFSA.

Read: TFSA back to $5,500: what to do

Here are some additional findings.

  • 24% correctly identified the maximum annual TFSA contribution limit of $5,500, which is a slight increase in awareness compared to the last two years (22% in 2014, and 19% in 2013);
  • 56% were aware that the annual contribution rate is not linked to their income; and
  • 23% know there is a monthly penalty for over-contribution.

Further, keeping track is important because 10% of TFSA holders contributed over their limit this past year. And 85% believe their financial advisor should be tracking contributions for them.

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Here are some tips to avoid TFSA confusion.

  • The 2016 TFSA contribution limit is $5,500.
  • To open a TFSA, a client must be 18 years of age or older.
  • The penalty for over-contribution is 1% of the highest excess amount within a given month, and will be charged for each month that the excess amount remains in the account.
  • TFSAs can hold both cash and investments, including GICs, stocks and mutual funds.