I think the title says it all. At least this is my position.
Recently Finance Minister Joe Oliver made good on a Conservative promise to increase the annual contribution limit (to $10,000) for Tax Free Savings Accounts (TFSAs), which currently sits at $5,500 per adult account holder. Some people don’t agree with my position, and that’s fine, so let’s have the debate friends.
TFSA contribution haters say…
- Lower-middle class and lower working class Canadians will suffer the most. Their argument is with less general tax revenues for our government (over time), fewer social support programs will exist, the less support will be provided to marginalized citizens.
- Upper-middle class and upper working class Canadians will hoard (tax-free) money.
- This is only a political move to earn votes from affluent Canadians.
- The higher TFSA limit only makes sense for teachers and public servants, who have defined contribution or defined benefit pension plans to rely on, since TFSA withdrawals will not push these individuals into a higher income tax bracket.
- TFSAs already make sense for young adults, in their 20s and 30s, saving for a major purchase or for retirement – there is no need to increase the contribution limit.
- People will raid their TFSA more.
- The government should direct their focus on making savings for Canadians (not accounts that hold savings) more tax-efficient.
Of course, I disagree with almost all of this.
TFSA contribution lovers say…
- Any way for people to get ahead (i.e., more contribution room) is a good thing.
- Any way to keep the government’s hand out of our wallet is a good thing.
- Forget what the government does or doesn’t do with your money, at least this change allows investors more financial flexibility.
- A higher TFSA limit might mean young adults don’t need to use Registered Retirement Savings Plans (RRSPs) altogether.
- Using the TFSA room some Canadians may be able to curb “the tax headaches” associated with RRSP or RRIF withdrawals.
- Savings inside a TFSA can be withdrawn and these withdrawals do not affect the eligibility requirements associated with Old Age Security or Guaranteed Income Supplement programs.
- It could eventually make the RRSP-Home Buyers’ Plan obsolete – removing more bureaucracy.
- If you decide to use the RRSP in combination with the TFSA, you can make better tax decisions and effectively re-shelter retirement savings.
- It may negate the need to hold any investments non-registered, simplifying tax consequences such as the adjusted cost base for most investors.
From my perspective individual and collective financial prosperity will come from flexible saving and investing options that limit bureaucracy.
That means, put the TFSA contribution limit higher if we can including up to $10,000 per year.
If we are all given an opportunity to grow wealth, this is where the government should be doing everything in its power to help. The increase to the TFSA contribution limit is a great thing, for all Canadians.
Stop complaining and take advantage of this account as much as you can while you can.
What’s your take on the new TFSA limit? Love it? Hate it? Let me know.