It's Your Money  

Ways to maximize your Tax-Free Savings Account

TFSA tips and tricks

In a welcome move for savers and investors, the federal government recently announced an increase in the Tax-Free Savings Account (TFSA) annual contribution limit to $7,000.

This adjustment, up from the previous limit of $6,500 last year, opens up increased opportunities for Canadians to grow their wealth tax-free. Since the TFSA room you have accumulates even if unused in previous years, this means that anyone born prior to 1991 will now have $95,000 of total contribution room as of Jan. 1, 2024.

As we explore this exciting development, it's essential to also revisit some valuable tips and tricks to make the most of the TFSA program.

The TFSA has been a game-changer for Canadians since its inception in 2009, providing a tax-efficient way for individuals to save and invest. The recent increase in the annual contribution limit to $7,000 is a positive step that acknowledges the rising cost of living and the importance of encouraging long-term savings.

With this adjustment, Canadians now have even more room to shield their investment gains and income from taxation. The TFSA remains a versatile tool, allowing individuals to invest in various asset classes, including stocks, bonds, mutual funds, and GICs, without incurring capital gains taxes on the returns generated within the account.

Maximizing your TFSA: Tips and tricks

1. Start early and contribute regularly—Time is a powerful ally when it comes to investing. Starting early and contributing regularly can help harness the magic of compounding. By contributing consistently, you not only take advantage of market fluctuations but also benefit from the potential for long-term growth.

2. Diversify your Investments—While TFSAs are a tax-efficient vehicle for various investment options, diversification is key to managing risk. Spread your investments across different asset classes to create a balanced and resilient portfolio. This way, you can mitigate the impact of volatility on your overall returns.

3. Reinvest dividends and interest—Rather than withdrawing dividends and interest earned within your TFSA, consider reinvesting them. Reinvesting compounds your returns over time, accelerating the growth of your portfolio. This strategy is particularly effective for those with a long investment horizon.

4. Take advantage of contribution room—If you haven't maximized your TFSA contributions in previous years, you can carry forward unused contribution room. This provides an opportunity to catch up on contributions and make the most of the increased limit. Be sure to check your contribution room regularly to capitalize on any available space.

5. Consider growth stocks for long-term growth: Growth stocks have the potential for substantial capital appreciation over time. Given the tax-free nature of TFSAs, consider allocating a portion of your portfolio to growth stocks that can benefit from compounding and generate significant returns over the long term.

6. Reassess and adjust your portfolio—Market conditions and your financial goals may change over time. Periodically reassess your TFSA portfolio and make adjustments as needed. This could involve rebalancing your asset allocation or reallocating funds based on changing market dynamics.

Remember, the TFSA is a powerful tool for both short-term goals and long-term wealth accumulation. Whether you're a seasoned investor or just starting, maximizing your TFSA requires a thoughtful approach, consistent contributions, and a commitment to staying informed about market trends and opportunities.

With the right strategies in place, Canadians can continue to enjoy the benefits of tax-free growth and build a more secure financial future.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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