Use this calculator to find out your current tax-free savings account (TFSA) contribution limit.
“Tax-free savings account” is a somewhat misleading term. While you need to use it for easy savings, consider it more specifically as an investment account for storing things like exchange-traded funds (ETFs). Guaranteed Investment Certificates (GICs), bonds, stocks and, yes, just regular money. Although you should keep on with the defined contribution margin annually, any gains you make from these investments won’t affect your contribution margin for the present yr or future years. In addition, the income earned is tax-free (more on this below). Any Canadian resident who is eighteen years of age or older and has a legitimate Social Security number can open a TFSA.
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In addition to a TFSA, an RRSP is one other powerful tax-advantaged account. Check out the very best RRSPs in Canada.
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Is a TFSA really tax-free?
In contrast, TFSA contributions don’t reduce your taxable income and end in a tax refund Registered Retirement Savings Plan (RRSP) Posts. (If you have not maxed out your RRSP yet, get it before the deadline.) However, the good thing about saving taxes with a TFSA is that the returns you earn in your TFSA will not be taxable. This signifies that income from interest, dividends or capital gains will not be subject to income tax. All income earned on the account is mostly tax-free, even whether it is debited. We say “generally” because, for instance, foreign dividends could also be subject to withholding tax, however the dividends won’t be included in your tax return. (Not sure where to take a position? Read TFSA vs. RRSP: How to Decide Between the Two.)
How does the TFSA contribution room work?
Your TFSA contribution limit is the utmost amount you’ll be able to contribute to your TFSA for a given yr. Your contribution room and your age affect the quantity of your contribution room. Starting the yr you switch 18, you’ll be able to begin accruing contributions (so long as you might be a Canadian resident), even in the event you have not filed an income tax return that yr or don’t yet have a TFSA.
Your contribution room is the overall amount of the next:
- The TFSA dollar limit for the present yr
- Any remaining contribution room from previous years
- Any withdrawals out of your TFSA within the previous yr
The TFSA contribution limit for 2024 is $7,000. If you turned 18 before 2009 and have never contributed, your maximum lifetime TFSA contribution limit is $95,000. When you withdraw money out of your TFSA, you get the room back on January 1st of the next yr. Just don’t go over your limit and do not make the error of pondering you will get your TFSA withdrawal room back straight away.
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What happens in the event you contribute an excessive amount of to your TFSA?
If you exceed your contribution limit, you can be subject to at least one 1% penalty tax per thirty days. Fortunately, this 1% tax only applies to the over-deposited amount, not the whole account value.
What are you able to hold in a TFSA?
Qualifying investments for TFSAs include:
- Cash): This includes each money and money market funds. Only government-issued money qualifies, meaning cryptocurrency will not be a registered eligible investment.
- Guaranteed Investment Certificates (GICs): GICs pay guaranteed rates of interest for a particular term. You should purchase a GIC with money in your TFSA.
- Investment funds: A mutual fund pools the investments of many investors to buy a basket of assets, normally stocks or bonds. Mutual funds could be actively or passively managed and their fees vary accordingly.
- Exchange Traded Funds (ETFs): ETFs track or mimic various stock indices and their shares are traded on stock exchanges. You can pick from actively and passively managed ETFs, each of that are eligible for registration.
- Bonds (each corporate and government bonds): Investors should purchase individual bonds through a registered account, even though it is more common to own bonds through a mutual fund or ETF.
- Stocks (also called stocks or securities) listed on a particular stock exchange: These generally include stocks on the Toronto Stock Exchange, the New York Stock Exchange or the NASDAQ stock exchange. However, there are other North American exchanges, and technically any stock traded on a recognized exchange will qualify. Foreign, non-North American securities are mostly purchased by purchasing their American Depositary Receipts (ADRs) on a U.S. exchange.
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Read more about TFSAs:
- How does a TFSA work?
- Registered or Unregistered GICs: Which One Should You Buy?
- The Best TFSAs in Canada
- How to take a position in Canada as a teen
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