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  • Writer's pictureHilary M.K. Poff

How to Make the Most of Your TFSA in 2024

There are a large number of different ways in which Canadians can save, invest, and grow their money. One popular way to generate income tax-free is through a Tax-Free Savings Account, or TFSA.

First launched in 2009, the TFSA allows Canadians over the age of 18 to invest in this special account and keep all of their potential gains, tax-free. If you invest $2,000 in a stock and sell it for $10,000, you keep all of that money, tax-free.

And that’s what makes the TFSA different from a Registered Retirement Savings Plan (RRSP). Through an RRSP, contributions are made before being taxed. You only pay tax on any earnings made through the RRSP when you cash them in, withdraw, or receive payments from the RRSP.

How Much Can I Put into a TFSA?

There is a limit to how much Canadians can deposit into a TFSA each year. That number changes from year-to-year. The amount you can deposit is indexed to inflation, and in this high inflationary environment, the contribution rate has increased over the last two years. 

In 2022 the limit was $6,000. But because of high inflation, the contribution limit was raised to $6,500 in 2023 and to $7,000 in 2024. When the TFSA was first introduced in 2009, the limit was $5,000.

If you’ve opened a TFSA and never contributed or want to open a TFSA, the amount begins accumulating from 2009, or from the year you turned 18. If, for example, you open your first TFSA in 2024, the total cumulative room is $95,000, if you were 18 or older in 2009.

How Often Can I Contribute to a TFSA?

Because TFSA contributions are based on the cumulative total, there is no deadline for when you can make a deposit. The only number you need to pay attention to is the cumulative total, which in 2024, stands at $95,000. 

If you’ve never contributed, you are eligible for the entire $95,000 amount. If you have contributed, you can make contributions to catch up to the $95,000 maximum amount. 

Make sure you don’t overcontribute. If you do, it can result in financial penalties from the CRA.

What Investments Can I Make in a TFSA?

Despite being named a Savings Account, the TFSA is anything but. It’s really a tax-shelter where you can invest a large number of various financial products, including stocks, bonds, mutual funds, GICs, and ETFs. 

Most TFSA holders prefer stocks because of the high potential for capital gains, dividends, reinvesting, and compound growth. But the kind of investments you make will be based on your individual preference and risk tolerance.

Is a TFSA Good for Day Trading or Long-Term Investing Goals?

A TFSA is the perfect vehicle for reaching your long-term financial goals. Again, this is because the investment income and capital gains are all tax-free. 

Thanks to compounding interest rates, it takes a stock that earns 5% about 14.2 years to double. If the annual rate of return is 8%, it takes nine years for that investment to double. TFSA investing is more of a marathon than sprint.

In fact, you should avoid using a TFSA for day trading. If you do, the CRA could consider it to be a business. And that could lead to taxes on capital gains.

To get the most of your TFSA, make regular contributions, choose investments you’re comfortable with, and use it for your long-term financial goals. The earlier you start contributing to a TFSA, the sooner you can start taking advantage of compounding that tax-free income. 

Sharp Asset Management – Helping You Reach Your Financial Goals

With 22.3 million accounts, TFSAs have become one of the most popular ways for Canadians to earn money tax-free. If you live in Toronto or the GTA and are interesting in learning more about how you can get the most out of your TFSA, contact the private investment management professionals at Sharp Asset Management.

Sharp Asset Management is an independent wealth management firm that is 100% owner operated. Because our retirement planning professionals are not affiliated with any financial institution, securities firm or mutual fund company, our investment decisions are unbiased. Nor do we earn any commissions or fees on investments we choose on behalf of our clients.

All of our investment counsellors are charter financial analysts, the highest level of achievement, and have over 10 years of experiencing managing portfolios. To learn more about how Sharp Asset Management can help you with your retirement planning, contact us today.

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