The annual Tax-Free Savings Account also known as TFSA gets indexed to inflation each year. Then the government rounds that amount to the nearest $500. Although the reported indexation increases for 2020 is 1.9%, the new contribution limit amount for the year is still $6,000.
The total contribution room that’s currently available for eligible individuals who have never contributed to the TFSA since its 2009 introduction is $69,500 if they were 18 and older in the initial year of the savings account.
Anyone who is 18 years of age or older with a legal Canadian Social Insurance Number also known as SIN is eligible to open an account.
Your contribution room starts to accumulate beginning the year you celebrate your 18th birthday. If you live in a territory or province where the age of majority is 19, you still get the first year of your contribution room at 18, even though local laws don’t allow you to open a TFSA until the next year.
What Is the History of TFSA Contribution Limits?
Except for 2015, when a $10,000 contribution became available, the annual TFSA dollar limits have been between $5,000 to $6,000 throughout the history of the program.
The limit was $5,000 for 2009-2012. It rose to $5,500 in 2013-2014 and 2016-2018.
All of the profits you earn within the context of the TFSA are entirely tax-free. If you can reach the contribution caps each year for this account, then you can build a passive income ladder when your focus is on dividend investing.
Can I Take Money Out of My TFSA?
You can make a tax-free withdraw of funds from your TFSA at any time. The only limitation placed on this activity is that you cannot contribute that money back until the next year.
If you contributed $6,000 in February 2019, but then withdrew it in September, then you could not add it back until January 1, 2020.
You might want to consider this option if you accidentally over-contribute to your TFSA. Anything over the cap receives a 1% penalty per month.
Now is the perfect time to start contributions so that you can reach your total contribution room. This tax-free way to grow wealth can improve your financial health dramatically.
Christopher has an MBA from a top Canadian University and a decade of Big 5 banking experience plus another decade of marketing knowledge. She has a passion for writing about financial topics and has founded and developed the brand of Underbanked®.