Get your trading accounts ready because the new TFSA limit has been set for 2024.
The TFSA contribution limit is $7,000 for 2023, for a total of $95,000 if you have been qualified since 2009.
Chart of the TFSA Limit for 2024
One of my favourite features is that the TFSA limits are the same for every Canadian. Your income level does not matter.
This is great because it gives every Canadian plenty of room to start saving. You carry forward the unused TFSA room that you haven’t used in the previous years, so if you miss a year, don’t worry; it will be available for you still.
If you were over 18 and had been living in Canada since 2009, you would now have $95,000 as of 2024 of total TFSA room to contribute. This is huge!
TFSA vs RRSP
There’s an endless debate on whether you should contribute to a TFSA or an RRSP. There are some general rules of thumb, such as if your income is $50,000 or less, start contributing to the TFSA first. Your marginal tax bracket is essential here.
If you are beginning to pay a very high tax rate because your income is significant, you could consider contributing to your RRSP. But I like to max out my TFSA before my RRSP.
The three reasons that I like to choose the TFSA first over the RRSP:
- Flexibility – The RRSP is locked in until retirement, and any attempt to withdraw it will incur hefty taxes.
- Simplicity – The TFSA is simple to understand and easy to figure out the contribution rooms.
- Transparency – Because we don’t know exactly what tax rates will be in the future or what our income bracket will be when we retire, it’s challenging to know how much taxes we will be saving in the long run with the RRSP. The TFSA does not have this problem.
An exception is if your employer provides you with matching RRSP contributions, then always go max out your RRSP first since it is considered “free” money.
Common TFSA Mistakes to Avoid
1. Withdrawing TFSA and contributing in the same year
If you withdraw from your TFSA, that contribution room won’t be available until the next year. If you’re near the contribution limit, wait until the following January to contribute again to your TFSA.
2. Overcontributing
If you overcontribute to your TFSA, you will incur a penalty of 1% of the value every month. Make sure you don’t overcontribute, and always check your TFSA contribution limit if you’re not sure.
3. Purchasing foreign dividend stocks
If you buy a foreign dividend stock, such as a U.S. stock in your TFSA, the dividends are subject to a withholding tax of 15%. While the amount isn’t usually too significant, this is something you want to be wary of.
4. Transferring between financial institutions in cash
If you transfer between financial institutions in cash, you risk overcontributing to your TFSA, which will be considered withdrawing from your TFSA.
Conclusion
Every year that the government offers the TFSA again is a great one. With your extra TFSA room, you can continue to see your savings soar. Check out my TFSA ultimate guide here for a complete list of anything you want to know about the TFSA.
