TFSA Limit Over The Years
The TFSA limit will remain at $5,500 for 2017 due to years of low inflation, but is still good news for those looking to build wealth. For those who were at least 18 years old in 2009 and a Canadian resident since, now have a cumulative TFSA limit of $52,000.
Jamie Golombek of the Financial Post believes the limit for a tax-free savings account will be frozen until at least 2019 because inflation rates are expected to hold steady even with the incoming President-elect Donald Trump. It was announced in December that the inflation rate of 1.4 per cent, which is determined by the Canada Revenue Agency, is used to index various personal income tax and benefit amounts. However, TFSA rules outline a hefty penalty for over-contribution.
On the other hand, the basic personal amount an individual can receive tax-free has increased from $11,474 to $11,635.
The TFSA is Growing Up
First introduced in the 2008 federal budget, the TFSA came into effect on Jan 1. 2009 and the brainchild of former finance minister Jim Flaherty has become an extremely popular form of investing for young Canadians looking to start an investment portfolio.
Clay Gillespie, a financial advisor and managing director of Vancouver-based Rogers Financial, told the Financial Post that the TFSA’s dynamic use has redefined the possibilities for millennials.
“I remember when you just had $5,000 and you really couldn’t do anything with them. Now you see portfolios with $60,000 to $70,000 for each husband and wife if they have been maximizing their contribution,” Gillespie said.
The amount available to invest in a TFSA has stayed around the $5,000 other than flirting with $10,000 back in 2015, but Liberals were quick to repeal that number after winning the election. This meant a return to incremental increases of $500, but relatively low inflation over the last couple years means the max will not go up to $6,000. This is because the TFSA is rounded up to the nearest $500 when indexed for inflation. Despite the limitation, there is the benefit of the unused space can be rolled over into the new year, since only one in five Canadians were at the maximum contribution limit for a TFSA, according to the Canada Revenue Agency. This also accounts for any withdrawal from the account made in the previous year.
TFSA vs RRSP
Basically, whatever is permitted for an RRSP is also permissible for a TFSA. However, the TFSA is not for everyone. If you fall under high tax bracket, then you may be better off investing the funds in your Registered Retirement Savings Plan. This is because the biggest draw of the TFSA is that it’s essentially tax-free, while an RRSP is tax ‘deferred.’ An RRSP is also tax deductible, while the TFSA is not. Lastly, withdrawals from an RRSP is added to your personal income for tax purposes, but TFSA withdrawals are null because it is not included in your income.
Still unsure of where to invest your funds? Contact a tax professional to determine the best solution.