The Tax-Free Savings Account (TFSA) is a popular way for Canadians to save money and grow their investments without paying taxes on their earnings. Each year, the government sets a limit on how much you can contribute to your TFSA. As 2024 goes by, it’s important for savers and investors to understand the new contribution limit and how they can maximize their finances judiciously using the TFSA.
In this blog post, I’ll explain the TFSA contribution limit for 2024 and what it means for you.
TFSA Contribution Limit for 2024
The TFSA contribution limit for 2024 is $7,000, an increase from the previous year’s limit of $6,500. The government adjusts this limit based on inflation, rounded to the nearest $500. This increase gives Canadians more room to save and invest tax-free.
Cumulative Contribution Room
If you’ve never contributed to a TFSA and were 18 or older in 2009, your total contribution room in 2024 is $95,000. This includes all the annual limits from 2009 to 2024. Remember, unused contribution room carries forward indefinitely. This means you can catch up on contributions even if you haven’t maxed out your TFSA in previous years.
Age Requirement
You must be 18 years or older and have a valid Social Insurance Number to open a TFSA. The contribution room starts accumulating the year you turn 18, even if you don’t open an account right away. This means younger Canadians can start planning their TFSA strategy early.
Contribution Tracking
It’s important to keep track of your TFSA contributions to avoid over-contributing. The Canada Revenue Agency (CRA) charges a 1% per month penalty on excess contributions. You can check your contribution room on your CRA My Account or by calling the CRA directly. Staying within your limit helps you avoid unnecessary penalties.
Withdrawal and Re-contribution Rules
Any amount you withdraw from your TFSA is added back to your contribution room, but not until the next calendar year. For example, if you withdraw $5,000 in 2024, you can re-contribute this amount in 2025, in addition to the new annual limit. This flexibility allows you to use your TFSA funds without permanently losing contribution room.
Investment Options
TFSAs can hold various types of investments, including cash, stocks, bonds, and mutual funds. The contribution limit applies regardless of the type of investment you choose. Any growth or earnings within your TFSA are tax-free. This makes TFSAs a versatile tool for different savings goals and investment strategies.
No Tax Deduction for Contributions
Unlike RRSPs, contributions to a TFSA are not tax-deductible. You contribute with after-tax dollars. However, all withdrawals, including investment gains, are tax-free. This makes TFSAs particularly useful for short to medium-term savings goals or as a complement to RRSPs for retirement planning.
Multiple TFSA Accounts
You can have multiple TFSA accounts, but your total contributions across all accounts must not exceed your personal limit. It’s your responsibility to keep track of contributions across all your TFSAs. Having multiple accounts doesn’t increase your contribution room but can help you organize your savings for different purposes.
TFSA vs RRSP Considerations
The increased TFSA limit might affect how you balance contributions between your TFSA and RRSP. TFSAs offer more withdrawal flexibility, while RRSPs provide tax deductions on contributions. Consider your current tax bracket and future financial needs when deciding how to allocate your savings between these accounts.
Spousal TFSA Strategies
You can give money to your spouse to contribute to their own TFSA without affecting your contribution room. This can be a useful strategy for couples to maximize their tax-free savings, especially if one spouse has a higher income. However, ensure that the contributing spouse doesn’t exceed their own TFSA limit.
10 Best Cash Back Apps To Save Money in Canada
10 Best Cash Back Apps To Save Money in Canada
Free $7,200 Canada Education Savings Grant
Free $7,200 Canada Education Savings Grant
The 10 Most Expensive Cities To Live in Canada
