With a new year comes a new opportunity to contribute to your TFSA. As of 2020, the maximum possible contribution room was $69,500.
Each year this contribution room grows; allowing you to tax shelter more of your hard-earned money.
The contribution limit for your TFSA in 2021 has added $6,000, matching the amount set in 2019 and 2020.
If you’ve ignored your TFSA up until now, don’t worry because you are not alone. Since its introduction in 2009, many Canadians have not used their TFSA contribution room.
With this TFSA dollar limit announcement, the total contribution room available in 2021 for someone that is eligible who has never contributed to their TFSA since its introduction in 2009 is $75,500.
The annual TFSA dollar limit is indexed to inflation and rounded to the nearest $500. The Canadian Revenue Agency’s indexation increase for 2021 is 1.0%
For clients who have withdrawn from TFSAs, their crystallized gains and losses from withdrawals are factored into their TFSA room. The formula is:
Unused TFSA contribution room to date + total withdrawal made in this year + next year’s TFSA dollar limit = TFSA contribution room at the beginning of next year.
Here are the dollar amounts by year:
|For 2009, 2010, 2011, and 2012:||$5,000 (each year)|
|For 2013 and 2014:||$5,500 (each year)|
|For 2016, 2017, 2018:||$5,500 (each year)|
|For 2019, 2020 and 2021||$6000 (each year)|
Anyone that is 18 years of age or older and who has a valid social insurance number is eligible to open a TFSA. The contribution room accumulates beginning in the year in which a person turns 18.
When we hear the term Tax-Free Savings Account (TFSA), the first thing that comes to mind is a low- or no-interest account at a bank. TFSAs can be an ideal savings and investment vehicle. People are surprised to learn that almost every investment option available to their RRSP is also available to them in a TFSA plan. This includes; Mutual Funds, Segregated Funds, ETFs, Stocks, GICs, etc…And the gains are TAX-FREE. Maybe they should call these TFIAs: “Tax-Free Investment Accounts” since tax sheltering investment gains is truly where they shine!
Contributions to a TFSA are not tax deductible and withdrawals are tax free.
We think TFSAs are pretty nifty and encourage our clients to take advantage of their benefits. Many of our clients who don’t have life insurance opt to load up their TFSAs with a life insurance company in Segregated Funds, GIFs, or GICs and directly name their beneficiaries so that their loved ones have access to these funds quickly in a time of need.