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Maximizing Your Savings with a Tax-Free Savings Account (TFSA) Thumbnail

Maximizing Your Savings with a Tax-Free Savings Account (TFSA)

No matter what your financial situation or financial goal is, whether it be short-term or long-term savings, a Tax-Free Savings Account is an excellent option.

Despite its name, did you know that a Tax-Free Savings Account (TFSA) is more than just a savings account? That’s right. It offers much more than that. Because of its many attractive investment options, people might say it is more like a tax-free investment account. We have always asked that our clients view it this way to better understand its benefits.

Investment Flexibility and Tax Advantages

One of many advantages of a TFSA is investment flexibility. A TFSA portfolio can comprise multiple investment types.

In your Tax–Free Savings Account you can hold any type of qualified investment (not just cash and GIC’s, which many people get confused by) such as stocks, bonds and mutual funds and you can withdraw contributions as well as the interest, capital gains, and dividends earned in the account at any time, without paying taxes or reporting the withdrawals as income when you file your taxes, which makes this type of account excellent when saving for retirement.

Updated Contribution Limit and Long-Term Benefits

The TFSA contribution limit for 2023 has been officially released. The new limit is $6,500, up from $6,000, which was the amount set from 2019 to 2022. It’s been 4 years since we have seen an increase in the contribution limit! Finally, a benefit to inflation!

With the new TFSA limit announcement, the total contribution room available as of January 2023 for a TFSA is $88,000.

For those using a TFSA to save for retirement taking advantage of this contribution room annually throughout your working years could represent a savings of tens of thousands of dollars in tax in retirement.

For those wondering how withdrawals are treated when determining your total contribution room, here’s how it works:

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: