Take Advantage of the TFSA Contribution Limit Increase
Written by Preet Banerjee
Monday, December 10th, 2018
The Tax-Free Savings Account (TFSA) annual contribution limit for 2019 has been bumped to $6,000 from $5,500. That's a nice way to celebrate its 10-year anniversary.
If you've been eligible to contribute to a TFSA since it was introduced in 2009, that means the cumulative contribution limit will stand at $63,500 as of January 1, 2019 for anyone who has never made a contribution.
Celebrate the New TFSA Limit by Using It
If you're already maxing out your TFSA contributions, you probably don't need any convincing as to why you'll want to up your contribution in 2019 to take full advantage of the increase.
But if you're like many people and either don't have a TFSA, or are nowhere near using all the room that's available to you, you might want to consider a goal of finding an extra $500 over the course of 2019 to put into one. The New Year is always a great time to up your savings, or accelerate your debt repayments even just a little.
If you choose to spread out your contributions monthly, that $500 works out to $41.66/month. If you go weekly, it's $9.61/week.
TFSA Fast Facts
- If you're 18 or older and have a Canadian Social Insurance Number, you can open a TFSA.
- Even though the name is Tax-Free Savings Account, you can open a TFSA and hold long-term investments in it, like stocks, bonds, ETFs, and mutual funds.
- The "Tax-Free" part means the money inside the account is sheltered from tax, as long as you remain within your contribution limits. You put after-tax dollars into the account, and can make withdrawals from it without those withdrawals being subject to tax. This is almost the reverse of an RSP, where contributions reduce your taxable income (often resulting in tax savings), but withdrawals are added back to your taxable income (often resulting in tax owing).
- You can hold multiple TFSA accounts. But your contribution limit applies to all your TFSA accounts combined, so if the TFSA contribution room available to you is $6,000, you could technically put $1 into 6,000 different TFSA accounts. However, that would be a hassle, creating too many accounts to manage.
Use your TFSAs to Work Toward your Goals
While most people earmark RSPs for retirement planning, TFSAs have been used for short-term, medium-term, and long-term goals. Part of the reason for this is that when you make a withdrawal, the amount of the withdrawal is added to your contribution limit for the next year. In other words, you can regenerate contribution room. This makes it more flexible than an RSP.
A great way to celebrate the 10-year anniversary of the TFSA is to try and find more money to save into it.