TFSA Limit Increased from $5,500 to $10,000
- Update April 27, 2015: The Canadian government published an official news release that Canadians can immediately take advantage of the proposed $10,000 Tax-Free Savings Account contribution limit.
- Update April 23, 2015: The budget bill has not passed yet and must be passed in order for the TFSA increase to be approved and become law. So, I’d wait for Canada Revenue Agency’s Tax-Free Savings Account page to be updated before contributing that $4,500 amount.
If you were at least 18 years old back in 2009, and you have never contributed to a TFSA, you would have accumulated $41,000 contribution room.
- Each year from 2009 to 2012 allowed for $5,000 contribution room.
- Each year from 2013 to 2014 allowed for $5,500 contribution room.
- This year started off with a contribution room of $5,500, until the announcement on April 21, 2015, that it as now be raised to $10,000. Going forward, each year, there will be $10,000 TFSA contribution room until further notice.
$10,000 maybe a lot for some people, and not everyone have the extra cash to invest that much. But we all need to start somewhere.
Look within yourself and learn from experience to discover your unique investing style. Are you the type to put away a set amount every month, dollar-cost averaging, say $500 into the market via an ETF? One could do the same with individual stocks, except you might want to accumulate at least $1000 before investing to keep costs low. Banks typically charge $10 for each trade, which is about a 1% cost.
You Don’t Have to Invest $10,000 All At Once
There’s no one forcing you to contribute the $10,000, but any gains you get from a TFSA is tax-free, so it’d be illogical not to use it.
If you plan to put some funds in interest-producing vehicles, you can put that in a TFSA since interests are fully-taxed in the non-registered account. However, you’ll have to decide whether you save more taxes by placing interest-producing vehicles into a TFSA or if you put ETFs or stocks in a TFSA.
Of course, you can always create multiple TFSAs for the different types of investments. Just remember that the total contribution amount is still $10,000 for the year.
Contribute to the TFSA according to your own situation
I only hold stocks, including real estate investment trusts or REITs, and cash in my portfolio. REITs pay distributions (instead of dividends), and a part of that is return of capital, which reduces the adjusted cost base.
So that when you sell the units later, you experience a higher capital gain. The return of capital portion is different for each REIT and you need to look at the company website to find out the exact percentage.
If you want to avoid the tax hassle to calculate how much tax is needed to be paid for the distributions and for realized capital gains from an REIT, then you can consider buying REITs in the TFSA or RRSP. This situation gets more complicated if you’re reinvesting the distributions for a discount.
A TFSA is more flexible compared to a RRSP because you can take out and use the monthly income anytime if needed. And you can contribute the withdrawn amount in a new calendar year to continue the tax-free growth. Learn more how the TFSA works via this government website.
Here’s a Guide to Investing in REITs. Personally, I only invest in public eREITs because information of each publicly-traded REIT is readily available on its website, and there’s liquidity to sell the units quickly on the market if I wish to.
I also place some Canadian dividend growth stocks in my TFSA, including the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Enbridge Inc (TSX:ENB)(NYSE:ENB).
Currently, I also have BP plc (NYSE:BP) in my TFSA. BP pays foreign dividends with no withholding tax.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: I am long all stocks mentioned in the article at time of writing.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
Get Exclusive Articles from me on Seeking Alpha
- Access my portfolio of high-quality U.S. and Canadian dividend stocks.
- Real-time updates of when I buy or sell from this portfolio.
- Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.