In this issue
TFSA withdrawals – clearing up the confusion
In 2014, close to 55,000 Canadians faced Canada Revenue Agency (CRA) penalties for tax-free savings account (TFSA) contributions that went over the contribution limit. How do so many people make a contribution error when the rules seem so straightforward?
The truth is, the rules aren’t as straightforward as they seem. While the contribution limit is specific ($5,500 for 2014 contributions), the confusion arises around what happens when you make a withdrawal from your TFSA.
Your current
year's limit |
= |
Dollar limit
Current year |
+ |
Unused contribution room
from previous year |
+ |
Withdrawals made
in previous year |
If you’ve reached the contribution limit in your TFSA and you make a withdrawal, contribution room isn’t instantly available. You won’t get that contribution room back until the beginning of the following year. For instance, if you contributed up to the limit and you then withdraw $5,000 in June 2015, that room isn’t back in your TFSA contribution limit until January 2016. Remember, when you’ve reached the contribution limit and you make a withdrawal, you can’t put money back into your TFSA until the following year or you risk tax penalties.
The good news is, because the contribution limit is cumulative, the space the withdrawal created will be available in the following year. For instance, if you had withdrawn $5,000 in 2015, you’d have $10,500 in contribution room in 2016.
Looking for your TFSA contribution limit?
You can find your contribution limit by using the CRA’s Tax Information Phone Service (TIPS), or their online services, My Account and Quick Access. Visit www.cra-arc.gc.ca for more information.
The importance of rebalancing your portfolio
It may be time to think about rebalancing your plan
As time goes by, things change. The same can happen to the value of your investments because of increases or decreases over time. Ask yourself, do your investments match the asset mix for the risk tolerance you originally selected?
Why asset values change
Different investments grow at different rates. Over time, those that grow faster can make up a bigger percentage of your portfolio. For example, an asset class that originally made up 25 per cent of your portfolio might increase over the years to reach 40 per cent. Meanwhile another asset class may decrease from 25 per cent of your portfolio to 10 per cent.
Having an unbalanced portfolio can get in the way of your retirement goals. If you don’t rebalance, you may find yourself with an investment portfolio that isn’t aligned with your retirement goals.
Rebalancing your portfolio isn’t something you need to worry about day-to-day. Consider reviewing your investment plan once a year to ensure you’re aligned with the asset mix for the risk tolerance you originally selected. Also, make sure your risk tolerance hasn’t changed. Complete the Investment personality questionnaire (IPQ) in the Plan your retirement tool on GRS Access to see if you need to change your asset mix.
If you have questions or need help rebalancing your investment portfolio, call Access Line.
