8 tax-free savings account misunderstandings that could be costly

There are rules and restrictions on TFSAs that could wind up costing wayward investors in lost opportunity and even penalties. Here are the facts on eight common misunderstandings:

TFSA CONTRIBUTIONS CANNOT BE DEDUCTED FROM TAXABLE INCOME

Many Canadians confuse TFSAs with registered retirement savings plans (RRSP), which allow contributions to be deducted from their income to generate a tax refund.

While TFSA contributions don’t deliver an immediate tax break, withdrawals are never taxed. In comparison, RRSP contributions and all the gains they generate over time are fully taxed when they are withdrawn.