Almost half of Canadians (47%) have a TFSA, says a recent CIBC poll.
But, nearly half (41%) have no plans for the money they’re saving. In total, only 21% of TFSA holders have both a savings and investment style account, and most use them solely for storing extra money.
Gen Y investors eventually use the cash for car and home purchases, with some saying they’ll the use the funds for retirement or emergencies.
Further, only 47% of investors have made a contribution to their TFSAs so far this year. They typically only use them to avoid paying taxes on their returns.
Colette Delaney, executive vice president of retail & business banking at CIBC, says helping clients plan how to best use their money in advance is crucial. They’ll maximize their account—by using it for effective tax and retirement planning—and avoid paying any overcontribution penalties.
Read: Maximizing the TFSA
Say you have a client who wants to renovate his home. He’s 36 and has contributed the maximum $5,000 per year to his TFSA for the past four years. In total, he has $20,000 and has accumulated $900 interest.
If he withdraws the full amount to cover renovation costs, ensure he knows he won’t be able to re-contribute the amount right away without paying penalties. The following year, though, he’ll be able to replace the money along with the extra $5,000 allotted each year.
Read: TFSA overcontributions explained and Improving the TFSA
Canadians from Atlantic Canada, Saskatchewan and Manitoba are least likely to have a TFSA at 42%, whereas British Columbians are more likely at 52%.