The TFSA contribution limit increases every year, providing Canadians with more opportunities to save and invest. In 2024, the TFSA contribution limit has increased to $7,000, up from $6,500 in 2023.
The cumulative TFSA contribution room for someone who has never contributed to a TFSA and has been eligible since its inception in 2009 is now $95,000. It is important to note that over-contributing to a TFSA can result in penalties, so it is essential to understand the eligibility and contribution rules before investing.
Key Takeaways
- The TFSA contribution limit for 2024 has increased to $7,000, up from $6,500 in 2023.
- The total TFSA contribution room for an individual who was at least 18 as of 2009 is now $95,000.
TFSA Contribution Limit for 2024
The Tax-Free Savings Account (TFSA) contribution limit increases to $7,000 in 2024, up from $6,500 in 2023. This means that eligible individuals can contribute up to $7,000 to their TFSA in 2024 without incurring any taxes on the investment income earned within their account.
TFSA contribution limit is cumulative, meaning that individuals who have never contributed to a TFSA and have been eligible for one since its inception in 2009 will have a cumulative contribution room of $95,000 in 2024.
This is the TFSA annual limit over the years:
2009 – $5,000
2010 – $5,000
2011 – $5,000
2012 – $5,000
2013 – $5,500
2014 – $5,500
2015 – $10,000
2016 – $5,500
2017 – $5,500
2018 – $5,500
2019 – $6,000
2020 – $6,000
2021 – $6,000
2022 – $6,000
2023 – $6,500
2024 – $7,000
Contributions to a TFSA are not tax-deductible, but investment income earned within the account is tax-free, including capital gains, dividends, and interest. This makes the TFSA an attractive option for Canadians looking to save for the future and minimize their tax liability.
Eligibility and Contribution Rules
Age of Eligibility
To be eligible to contribute to a Tax-Free Savings Account, an individual must be at least 18 years of age or older and have a valid Social Insurance Number (SIN).
Residency Requirements
Individuals who are residents of Canada for tax purposes can contribute to a TFSA. Non-residents cannot contribute to a TFSA and are subject to a 1% tax per month on the fair market value of the contributions made to their account.
Over-Contribution Penalties
Contributing more than the annual contribution limit or making contributions while being a non-resident can result in over-contribution penalties. The penalty for over-contributing to a TFSA is 1% per month on the excess amount until it is withdrawn from the account.
Carry-Forward Contribution Room
Unused contribution room from previous years can be carried forward to future years. The cumulative contribution room for individuals who have never contributed to a TFSA and have been eligible for one since its inception is $95,000 in 2024.
While contributions to a TFSA are not tax-deductible, investment income earned within the account is tax-free. Withdrawals from a TFSA are also tax-free and can be made at any time without penalty. These rules make the TFSA a valuable tool for tax-free savings and investment growth.
Impact of Withdrawals on Contribution Room
When you withdraw funds from your TFSA, the amount of the withdrawal is added back to your contribution room on January 1st of the following year. This means that if you withdraw $2,000 from your TFSA in 2024, you will be able to re-contribute the $2,000 on January 1, 2025, plus the annual limit for 2025 (and any unused contribution room).
TFSA Investment Options and Strategies
Qualified Investments
When it comes to investing in a Tax-Free Savings Account, there are a variety of qualified investments to choose from. These include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more.
Investors should consider their risk tolerance and investment objectives when selecting investments for their TFSA. For those with a higher risk tolerance, equities such as stocks and ETFs may be a good option. For those with a lower risk tolerance, bonds and GICs may be more appropriate.
Tax-Efficient Strategies
One of the key benefits of a TFSA is the tax-free growth of investments. However, there are also tax-efficient strategies that investors can use to maximize the benefits of their TFSA.
One such strategy is to hold investments that generate income, such as dividends or interest, within the TFSA. Since the income generated by these investments is tax-free, investors can maximize the growth of their portfolio. In a non-registered account, interest income earned is taxed at your marginal tax rate.
Another tax-efficient strategy is to avoid frequent trading within your TFSA. The CRA can tax TFSA gains as income if they consider you to be carrying on the business of trading i.e. running a day trading business in your TFSA.
