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Welcome to 2019! Now that it’s January you can contribute $6,000 to your Tax-free Savings Account (TFSA), a program that’s now been around a full decade. That means couples can between them contribute $12,000.
The previous annual maximum was $5,500, but because of Ottawa’s promised inflation “bump” it has now officially been adjusted to $6,000. Recall that it was originally $5,000 when the program was introduced back in January 2009. Hard to believe it’s been ten full years now!
As the chart below illustrates, the cumulative limit (shown on the far right column) is now $63,500, which means a couple can between them invest $127,000. The first inflation adjustment was in 2014, when the limit reached $5,500. Under the Harper Tories it actually was almost doubled to $10,000 for calendar 2015 but one of the first things the Trudeau Liberal administration did was to reverse it back to $5,500 in 2016. It’s been $5,500 for three years until the new $6,000 limit that’s now in place.
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
In the early years of the program, it might have been tempting to dismiss the original $5,000 as being an “insignificant” amount but obviously $63,500 is a hefty amount and anyone who has been contributing the maximum from the get-go should with tax-free growth have considerably more than that by now: I often hear from readers who have more than $100,000 in them, although December’s brutal stock market action is likely to have set them back a bit.
Maximize the time value of money
Why contribute the new $6,000 right now? I view this as a “time value of money” exercise and you may as well maximize the compounding effect of tax-free growth, assuming you are focusing on equities. Except for profoundly conservative investors, I’d recommend that Millennials and Generation X members use the TFSA primarily for Growth (equities or stocks, or equity ETFs). Baby boomers at or near Retirement could use Balanced Funds or ETFs (like VBAL from Vanguard, which is 60% stocks to 40% bonds, spread around thousands of securities around the world.) That’s likely the one we’ll use ourselves this week: we put the money into our discount brokerages on January 1st, but will actually invest it before the week is out, once markets are open.
Keep in mind that you can keep adding to your TFSA well into old age: I know a lady who is more than 100 years old who continues to do just that! That’s a lot of potential growth, which is why a balanced product may make sense. Of course, those who value interest income and wish to eschew stock-market risk can also use bond ETFs or GICs in their TFSAs: these days even 2-year GICs can be found that pay 3% or more.
Happy new year!
