TFSA Over-Contribution Fuss

June 16th, 2010 by Potato

I don’t know what to make of all this fuss.

Supposedly, there are a lot of people out there that mishandled their TFSA accounts, ended up contributing more than the $5000 allowed in 2009, and are now being assessed the 1% per month penalty. This has lead to much wringing of hands and wailing over the fees (especially since if you opted for a savings account, you made 1% per year in interest on your over-contribution).

On the one hand, it was the first year of the TFSA, and people over-contributing to savings accounts with paltry interest were clearly doing so out of ignorance and not trying to out-earn the penalties, so perhaps there could be some leniency in the penalties assessed.

On the other hand, it’s not that complicated an account. The contribution room was $5000 for everybody — the RRSP has a similar over-contribution penalty, but people seem to be able to track their contributions for that (and there everyone’s contribution room is different!).

Indeed, before each of my blog posts on the TFSA I summed up the new account in just seventy words, which covered both the limit and the having to wait a year part:

“You can contribute money to it ($5000 per year) to grow tax-free until you feel like taking it out. While the banks might charge a fee to withdraw, there’s no tax penalty (unlike an RRSP), and you can recontribute any withdrawals in later years so you don’t lose the tax shelter space (again, unlike RRSPs) so it’s a great account not only for retirement, but also for medium/long-term savings goals.”

Other blogs and newspaper articles had similar summaries all throughout the introduction, I don’t know how people aren’t getting this.

At least the fuss over the penalties should give the issues prominence in the media so in the future, people will get it!

Comments are closed.