Q Can I have more than one Tax Free Savings Account? With different institutions?
A Yes, you can have more than one Tax Free Savings Account (TFSA), with different institutions. You must be careful not exceed your maximum contribution limit however, and this can be more difficult if your TFSA funds are spread out between different accounts.
TFSAs have now been available for 9 years – they started in 2009. If you have never contributed to a TFSA before, you could now contribute a maximum of $52,000. Since you are also permitted to withdraw funds from a TFSA and re-deposit them again the following calendar year, it can become confusing to track your contributions and contribution room.
Penalties for over-contributing to a TFSA are steep. The Canada Revenue Agency (CRA) charges a 1% tax on your highest excess TFSA amount for each month you are overcontributed. For example, if you contributed $2,000 too much to your TFSA in January and withdrew the $2,000 excess contribution in September of the same year, you would owe $180 tax on your excess contributions (because you would be over contributed by $2,000 for 9 months of the year).
You can find your TFSA contribution room on the CRA website or by calling CRA, but the information is not always up-to-date for the previous year until the middle of the following year. Your RGF advisor can help you track your TFSA contribution room, but if you have more than one TFSA, the chance of errors increases greatly.
Q My wife recently died and I am not clear on how this will change my government benefits or my income tax situation. We had a significant portion of our funds in RRIFs and I also have a pension from my employer. So I believe I will still have sufficient income, but what are some the things I should be aware of?
A One of the major implications for you will be that you will no longer be able to split pension or RRIF (Registered Retirement Income Fund) income on your income tax returns. Let’s say you had significantly more pension/RRIF income than your spouse and you were using the pension income splitting provision on your income taxes to reduce your overall family tax bill. Going forward, even if you receive the same gross amount of pension/RRIF income before tax, the whole amount will now be taxable in your hands alone. As a result, the net amount to you after tax will be less than before.
You will also no longer receive your spouse’s Old Age Security (OAS) benefit – currently a maximum of $578.53 per month.
As for her Canada Pension Plan (CPP) benefit, if you receive the maximum amount – currently $1,114.17 – you will no longer receive her CPP. If you receive less than the maximum, you may receive a survivor’s benefit that brings you up to the maximum. Let’s say that previously you were receiving a CPP retirement pension of $900/mo and she was receiving $700/mo. Your new combined survivor’s benefit and retirement pension can only bring you up to the maximum of $1,114.17, it cannot exceed that amount.
There may be other implications too.Your RGF advisor can help you better understand your financial situation and how it might change going forward.