A Tax-Free Savings Account (TFSA) is a type of investment account available in Canada that allows individuals to save and invest money without paying tax on the investment income earned within the account or on withdrawals from the account. TFSAs were introduced in Canada in 2009 as a way for Canadians to save money tax-free for various purposes, such as retirement, a down payment on a house, or emergency funds. Each year, the Canadian government sets a contribution limit for TFSAs, and any contributions made to the account are not tax-deductible. However, the investment income earned within the account is tax-free, and withdrawals from the account are also tax-free.

These accounts are a great wealth building tool so let's address the mistakes we don't want you to make with yours!

1. The first mistake we see is around beneficiary designation. With the Tax-Free Savings Account (TFSA), there are two ways to list a beneficiary: one is a beneficiary, and the other is a successor holder. Suppose you have a spouse or common-law partner. In that case, make sure to list them as a successor holder rather than a beneficiary. The difference is that if the spouse or common-law partner is listed as a beneficiary, they would receive the money as a beneficiary, but they could only put that money into their TFSA if they had the contribution room. However, if they were listed as a successor holder, they would be able to lump it into their own TFSA, even if they didn't have the contribution room. This could save them from potential tax situations and claw back OAS.
   
   
2. The second mistake is using the TFSA as a savings account. When the TFSA was launched in 2009, many banks in Canada marketed it as a high-interest savings account, but that is not what it should be. The TFSA should be used as a long-term investment tool, much like an RRSP. It's okay to invest in high-interest savings on occasion, but not as a regular use.
   
   
3. The third mistake is using the TFSA while still having high-interest debt. If you have high-interest debt, such as credit card debt, you should focus on paying that off first before investing in a TFSA. The interest rates on debt are much higher than what you can earn on your investments.
   
   
4. The fourth mistake is over-contributing to the TFSA. The over-contribution penalty is 1% per month, and it can add up quickly. Make sure to keep track of your contributions and withdrawals, and don't exceed your contribution limit.
   
   
5. The fifth and final mistake is not investing in the TFSA. Many people open a TFSA but never invest in it. The TFSA is a great investment tool, and it can help you save on taxes in the long run. So make sure to invest in it wisely.

Parallel Wealth Financial Group provides tailored financial services focused on wealth management and retirement planning. Based in Langley, BC with offices in St. Catharines, Ontario & Calgary, Alberta we proudly serve clients across all of Canada.