TLDR: If you turned 18 years old in 2009 or before: $88,000.
As a Canadian, you’ve probably heard about the Tax-Free Savings Account (TFSA) and its numerous benefits. However, if you’ve never contributed to a TFSA before, you might be wondering how much contribution room you have. How you can maximize its potential is another question.
What Is A TFSA
It’s important to understand what a TFSA is and how it works. Essentially, a TFSA is a special investment account that allows you to save or invest money tax-free. This means that you don’t have to pay any tax on the money you earn from your investments. This includes capital gains, dividends, and interest.
What Is The Contribution Limit In 2023?
The annual contribution limit for a TFSA is determined by the federal government and is subject to change. For 2023, the contribution limit is $6,500. This means that you can contribute up to $6,500 of your money to your TFSA in 2023 without incurring any taxes.
If you’ve never contributed to a TFSA before, your total contribution room will depend on the year that the TFSA program was introduced. It also depends on when you turned 18 years old. The TFSA program was introduced in 2009, and since then, the annual contribution limit has increased several times.
What Is The Total TFSA Contribution Room In 2023
If you were 18 years or older in 2009, your total contribution room as of 2023 would be $88,000. This is because the annual contribution limit for each year from 2009 to 2023 has been added together. For example, in 2023 the contribution limit is $6,500. In 2022 it was $6,000, so your total contribution room would be $12,500 for these two years alone.
If you turned 18 years old after 2009, your total contribution room will be lower because you haven’t had as many years to contribute. For example, if you turned 18 in 2014, your total contribution room as of 2023 would be $62,500. This is because the contribution limit for each year from 2014 to 2023 has been added together.
This is because 18 is the minimum age for TFSA.
It’s important to note that if you exceed your total contribution room, you will be subject to a tax on the excess. This is known as an “overcontribution tax.” To avoid this tax, it’s crucial to keep track of your total contribution room. Only contribute an amount that is within your limit.
How To Invest A TFSA
Now that you know how much total contribution room you have, the next step is to decide how to use it. One option is to invest your money in a diverse range of assets, such as stocks, bonds, and exchange-traded funds (ETFs). This can help to spread out your risk and potentially earn higher returns over the long term.
Another option is to use your TFSA to save for specific financial goals, such as a down payment on a house, a vacation, or retirement. By setting aside money in a TFSA, you can achieve these goals faster because the money you earn from your investments is tax-free.
One of the great things about a TFSA is that you can withdraw your money at any time without incurring any taxes or penalties. This means that it’s a flexible savings tool that can be used for both short-term and long-term goals.
Happy investing!
