Earlier this week, the amount Canadians can stash away each year in their tax-free savings account (TFSA) increased by $500. Starting January 1, 2013, the federal government now allows us to contribute $5,500 in our TFSA each calendar year. You might recall when this great account was introduced in 2008 the federal government said it intended to index the contribution limit to inflation in $500 increments. Well, they made good on their promise. Here is a refresher about this account:
- Any adult Canadian can open a TFSA and use it for a range of investments.
- All interest, dividends, capital gains and income earned is tax-free. Any money contributed to a TFSA has already been taxed so it doesn’t get taxed again.
- Unused contribution room is carried forward indefinitely.
- Spouses can contribute to each other’s TFSAs.
- You can have multiple TFSA accounts at different financial institutions BUT it is up to YOU to keep track of your contributions each calendar year. The government will know if you go over the limit and they will ding you an over-contribution fee.
Remember – whatever investments are allowed in an RRSP account are also allowed in TFSAs – so make the most of it!
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One of the things I love about TFSA is that the contribution room is not dependent on your income. One of the things I hate about TFSA is that dividends from US stocks are subject to withholding taxes. The CRA and the IRS should do something about it. In any cases, TFSA is a great wealth creation tool. Happy week-end everyone!
You’re right, it is amazing that way. I wish the contribution room was higher though. $500 in 2013 is a great start in the right direction.
@My Own Advisor
A spousal RRSP can also be a great option if you have the contribution room, are in a higher tax bracket than your spouse and you expect that imbalance to remain.
Very good point about the spousal RRSP. Thanks for the comment!
I haven’t done much with either RRSP or TFSA over the last year, so it will be time to start topping up!
I’m working harder this year to get some funds into the TFSA. Paying down the mortgage was always my priority before it was paid off because I had locked in at a fairly high rate. I like the guaranteed tax free returns of paying down debt.
Thanks for mentioning my post on Netflix!
There is always a great deal of comfort with the mortgage paydown, which as you say, has a guaranteed rate of return!
Mark!
Thanks for the mention!
I won’t get a chance to max out my RRSP or TFSA, but I’m happy with my contribution amount to both. Have an awesome weekend.
Price ain’t got nuthin’ to do with it, it’s what you find on the walls in the master bedroom! Have a great weekend.
ha!
Hey Mark,
Great News about the TFSA for everyone. I still have a pile of room to dump money in which I plan to do shortly. What do you say RRSP first or TFSA as I have considerable room in both? I don’t invest on my own (one day maybe) so I just invest through an advisor. Thanks for the mention mate. Mr.CBB
I say ALWAYS try and max out the TFSA.
Regarding the RRSP, it depends, since the objective of the RRSP after all is tax-deferral. So, if you’re in a high tax-bracket now, it might make sense to use it and max it. For low-income earners, it makes no sense to use it before the TFSA is maxed out.