What growth opportunities do you have before the year-end?
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Tax-Free Savings Account (TFSA) offers Canadians a flexible way to grow their savings tax-free. With 2024 quickly coming to a close, here's a quick overview of the key benefits and opportunities for TFSAs, the currently available contribution room, and a summary of opportunities for growth in late 2024 (and ahead to 2025).
Key Benefits of TFSAs
- Tax-Free Growth: Any investment income earned within a TFSA (interest, dividends, or capital gains) is completely tax-free.
- Contribution Room: For 2024, the annual contribution limit is $7,000, and unused room from prior years carries forward. As of 2024, the maximum lifetime contribution limit (since 2009) is $95,000 for eligible individuals who were 18 or older in 2009.
- Flexibility: Withdrawals are tax-free and the amount withdrawn can be re-contributed starting the following calendar year or in the current year if you have remaining contribution room that equals or exceeds the amount withdrawn.
- Wide Investment Choices: TFSAs can hold various assets, including market-linked accounts (e.g., mutual funds, ETFs, or stocks) and fixed-term deposits (e.g., GICs).
Time-Sensitive Opportunities (before Dec. 31, 2024)
- "Deadline" to Max Out Contributions: There isn't a deadline to max out contributions because unused contributions can be carried forward to future years.
- Investing Early: Contributions made earlier benefit from compounding growth for a longer time, maximizing tax-free returns. However, market based TFSA investments are subject to fluctuation in value and a long term perspective should be used in this case.
- Plan for 2025: The new contribution room for 2025 will be $7,000 (same as 2024) and becomes available starting Jan. 1, 2025.
Investment Options in TFSAs
- Fixed-Term Deposits (GICs): Guaranteed Investment Certificates (GICs) provide fixed returns and guarantee your principal but usually have lower growth potential.
- Market-Linked Accounts: These accounts, such as those holding stocks or ETFs, offer growth potential but are subject to market fluctuations. Be aware of the risks associated with volatility.
- Account Fees: Some TFSAs allow free withdrawals, while others may impose fees, depending on the financial institution or investment type. Some TFSA providers charge significant fees to transfer your TFSA to another provider. You should review the potential future transfer fees and any other potential charges before you select a TFSA provider that you may only use for a limited time.
By planning contributions and investment choices strategically, you can optimize your TFSA’s tax-free benefits while preparing for the new contribution room in 2025.
More info on TFSAs
Interested in learning more about TFSAs? Our website contains all the information you need to get a better understanding. Here are some links for further reading:
FiscalAgents.com Tax-Free Savings Accounts hub page: Our introductory page and guide to all of our TFSA-related resources. Here you'll find links to information, current rates, and relevant financial tools.
FiscalAgents.com TFSA Rate Table: Updated twice daily, our TFSA table lists all of the financial institutions we deal with and their current offerings.
Government of Canada TFSA Guide for Individuals: Everything there is to know about TFSAs in one comprehensive guide.
