What Are the Downsides of a TFSA? Key Limitations Explained
Discover the main downsides of a Tax-Free Savings Account (TFSA), including contribution limits and penalties for over-contribution.
Video transcript
The downside of a TFSA (Tax-Free Savings Account) is that contributions are limited to a yearly maximum. Over-contributions result in penalties, and investment losses cannot be deducted from taxable income. Careful planning is essential to maximize benefits.
Questions and answers
What happens if I contribute too much to my TFSA?
If you over-contribute to your TFSA, you may face penalties in the form of a tax charge on the excess amount until it is withdrawn or room becomes available.
Can I deduct investment losses in a TFSA from my taxable income?
No, investment losses in a TFSA cannot be deducted from your taxable income; gains and withdrawals are tax-free, but losses do not provide tax relief.
What are the yearly contribution limits for a TFSA?
TFSA contribution limits are set annually by the government and may change each year. It’s important to keep track to avoid penalties.
Related questions
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