7 thoughts on “TFSA Limit Increased to $10,000 and What it Means to Investors

  1. Jess @ Best Credit Cards Canada

    I really think that the TFSA is a great savings vehicle, especially if you are able to max it out each year. After contributing to RRSP, the TFSA is always my next stop. We used it as a tool when we were saving to buy a house.

  2. Passive Income Earner Post author

    Jess, absolutely. The general consensus seems to be to max out the TFSA first if you’re at the low tax bracket ($40,000 and under). However, it also depends on what you’re investing for.

    If you’re investing to buy a car for example, it’d make more sense to save up in the TFSA because you can take out the money anytime. That’s not so for the RRSP. Just remember that after you take out the dollars from the TFSA, you can’t put it back in until the next calendar year, unless you had more capacity to begin with.

    However, I believe first time home buyers can take out up to a limit of $25,000 from the RRSP, and also a certain life-time limit for education purposes.

    If one is saving for retirement, the TFSA and RRSP are both good vehicles.

    PIE

    1. Jess @ Best Credit Cards Canada

      That’s a really good point about needing to wait until the next calendar year to return money that you have withdrawn from your TFSA. My understanding is that the penalty for over contribution is quite stern. And I really feel like this could be an easy mistake to make. Thanks for your comment!

      1. Passive Income Earner Post author

        Jess, yes, it’s very important to contribute to the TFSA in the next calendar year if you withdrew it from it this year, but you have no more capacity left for this year. I know someone that got dinged $700 for over-contribution due to this rule.

        The lesson? Track your contributions and how much contribution room you have left.

        PIE

  3. Steve

    I love the TFSA and it’s where I’m trying to stash my Canadian dividend growth stocks. Or, alternatively, I could also put my BHP’s, GSK, DEO, UL, etc because I don’t think any of those have withholding taxes.

    Could you imagine the TFSA being able to hold US Dividend stocks without a withholding tax? Now that would open up a world of cool!

    1. Passive Income Earner Post author

      Steve,

      Higher growth stocks (given the growth does materialize) should do better in the TFSA than slower growth. After all, we’re aiming to maximize the total return, unless you need the income right now.

      To not get the withholding tax on the foreign dividends, one must make sure to buy from the UK listing. So, I believe Canadians investing BBL, GSK, DEO, and UL in the TFSA shouldn’t have withholding tax on the foreign dividends.

      lol We wish! I don’t think the government would allow no withholding tax on US dividend stocks in the TFSA. They want us to use the RRSP so they can get their taxes when we take the money out! For investors at lower tax bracket, it might not make sense to contribute to the RRSP at all, but rather maximize TFSA and then non-registered/taxable. For example, I have a high growth, low yield US dividend stock in my TFSA — cuz the yield makes up such a small part of return.

      PIE

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