Tricky TFSA rules keep tripping up thousands of Canadians who make withdrawals from their TFSA accounts and replace the money too early.

Around 55,000 taxpayers got warning packages from Revenue Canada this year about the problem affecting their 2013 tax year, and were told that they face penalties.

The regulations say that account holders can put back the amounts they withdraw from a TFSA only in a later calendar year. Doing so in the same calendar year exposes them to a tax hit for over contributions, even though they’re only replacing the withdrawn funds.

By the end of 2013, some 10.7 million Canadians had a TFSA, a savings vehicle that allows your money to grow tax-free with no income-tax hit on withdrawal.

The popular savings tool cost the federal treasury some $410 million in forgone taxes in 2013, or more than a billion dollars over its first five years.

Some taxpayers are slow to absorb the tricky withdrawal rule.

As of the end of last month, Revenue Canada had waived penalties for more than 17,000 Canadians who broke the rule in 2012. The average penalty waived was $516, or a total of almost $9 million.

And for the 2013 taxation year, more than 20,000 Canadians have already paid their penalties.

Taxpayers who received a TFSA warning package in the mail this summer were given 60 days to respond. Those who don’t respond get a notice of assessment, imposing a penalty.

A spokesman for the agency says the onus is on Canada’s banks and other financial institutions to make sure their customers know the rules.

The current maximum annual contribution to a tax-free savings account is $5,500, though Prime Minister Stephen Harper has promised to double the maximum once the federal books are balanced.

Follow this Simple Rule:

If you withdraw money from your TFSA, then Wait until next Year to put the Money back in your TFSA.

If you do get the nasty letter from CRA, then talk to Softron at 905.273.4444 or Email us at softron@softrontax.com we will help you avoid the Penalties.

Robin Williams was many things — a genius comedian and an Academy Award winning actor. He was also a Great father. He will truly be missed.

He also tried to protect his children from the hazards of “affluenza” often seen when children receive a massive inheritance all at once & they are potentially too young to manage it.

“Under the trust, his kids, 22-year-old Cody, 25-year-old Zelda and 31-year-old Zachary received money … but in steps. When each turned 21 they got one-third of the share. When they turned 25 they got half of what remained. When they turned 30 they each got their full share.”

Every family’s situation and goals for bequeathing assets to their adult children are different. Here are my thoughts on questions you can ask yourself to plan how to leave money to your children:

Do you leave your money while you are still alive?

Some people decide, as Robin Williams did, that it’s better to hand down wealth to adult children while you, the parent, are still alive. The benefit is that you will have some ability to help guide your children’s decisions, and it can be hugely rewarding to watch them build their lives responsibly with the help of the gifts you have given them.

If you have an estate-tax issue, making substantial gifts while you are alive can help to get the future appreciation of the assets out of your taxable estate — which saves tax dollars down the road.

The other Benefit is that you minimize Probate & Legal fees.

If you leave assets for children upon your death, then do you give the funds to them outright? Or do you plan to have the funds held in trust?

If you leave assets to your children outright upon your death, you may be risking leaving a large amount of wealth in a lump sum to someone who may not be fully ready to manage the funds responsibly. Many wealthy individuals choose to have assets for their children held in trust, where they can create criteria for when and why the funds will be distributed.

Trusts can also offer some asset protection from creditors and divorce.

You should also consider Probate fees & Taxes upon death to ensure that there is a fair distribution. You would need a Clearance certificate from CRA before the assets can be distributed to the the trust or beneficiaries.

Who should draft a trust for your heirs?

When it comes to money, it is extremely important to seek competent advice from the right professionals. That’s why Softron always recommends that you choose a reputable estate-planning attorney. Also talk to your accountant regarding Tax implications. Make sure you have an up to date Will.

Softron has a new Trust & Estate Planning course which covers these issues in Detail. Take a look at our new Trust & Estate Planning course and the rest of our course offerings on our courses page.