The TFSA Contribution Limit is Increasing to $6000 in 2019
The TFSA Contribution Limit
Tax Free Savings Accounts contribution limits (TFSA) are indexed to inflation and rounded to nearest $500. Due to this, the 2019 contribution limit has increased to $6000 from $5500. I am a huge fan of the TFSA when utilized as an investment account because all gains and dividends are tax free in an investment portfolio. If you don’t already have a TFSA to invest, I have evaluated all of the options for you in Choosing the Best Brokerage Account for a TFSA.
Why a TFSA?
TFSA’s allow Canadian investors to make investment gains and receive dividends with absolutely zero capital gains tax to pay to the government. Because you are able to completely avoid capital gains tax, the government caps out how much you are able to contribute to the account annually. To see more information, you can visit the information on Contribution Limits from the Government of Canada.
Canadians can see the amazing long-term performance of an invested portfolio of stocks and receive dividends in the process in a TFSA. Sheltering the account in a completely tax-free account like a TFSA, the compounding effect of your investment portfolio will see incredible growth with enough time. Canadians with zero knowledge on investing can still take advantage of the market by investing in broad based index funds on the Toronto Stock Exchange.
TFSAs vs. RRSPs
A classic debate between the two popular investment account types. There is no truly correct answer as it is case specific on which one is more effective. Registered Retirement Saving Plans (RRSPs) can be an effective way to pay less tax on your income during earning years in your career. However, TFSAs are TRULY tax free no matter what, while RRSPs are taxed later in your retirement.
No Age Requirements for a TFSA
Any Canadian can use a TFSA unlike RRSPs you have to be younger than 72 and have earned income, while RRIFs where you must be 72 or older. There are no requirements for a TFSA and I am a believer that it should be the first account you invest funds into every year.
You can re-contribute withdrawals in your TFSA
If you withdraw $2000 from your TFSA, then you have added $2000 to your contribution limit. This means that the account is truly liquid in a sense that you will not have to worry about losing your contribution limit later down the road. If you need the funds from your investment portfolio in a TFSA, no stress.
You can even increase your contribution limit if you withdraw on investment gains. In our example, let’s say that you made $500 on your $2000. When you withdraw the full $2500, you now have freed up $2500 in contribution room when you are ready to invest again. Meaning, your limit has increased by $500.
The tax free savings account (TFSA) is a great place for Canadians to shelter their investment portfolio from capital gains tax and create wealth over the long term.