Most Canadians plan to contribute the maximum allowable amount to a tax-free savings account within the next five years, according to new report.
BMO Bank of Montreal, a unit of BMO Financial Group, Toronto, released this finding in a summary of results from a new poll of 1,000 Canadians. BMO commissioned Toronto-based Pollara Strategic Insights to conduct the poll in October.
The poll reveals that 57% of Canadians plan to contribute the maximum allowable amount (CDN $5,000) under Canadian law to a tax-free savings account within the next five years. For 2012, the report shows, Canadians plan to contribute an average of $3,778 to the TFSA.
Currently, fewer than have (44%) of Canadians are making the maximum $5,000 contribution.
Analogous to a Roth IRA in the U.S., Canada's new Tax-Free Savings Account is a registered savings vehicle that allows Canadians to earn tax-free investment income. The TFSA complements existing registered savings plans like Canada's Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).
TFSA account holders can choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
Among the BMO poll's additional findings:
- One in five (21%) of TFSA holders made an account withdrawal this year, with 39% withdrawing less than $1,000.
- Intentions to open a TFSA have increased in the last year. Twenty-nine percent of Canadians who not have a TFSA plan to open one, compared with 22% in 2011.
- The most common TFSA is cash, with the majority (60%) including cash in their TFSA. Mutual funds and Guaranteed Investment Certificates (GICs) are the second most popular TFSA investments, with one-quarter (26% and 25%, respectively) including them.
- The least common investments are stocks (18%), bonds (12%) and exchange-traded funds or ETFs (3%).