Some good news for TFSA holders: The annual contribution limit for 2019 has been raised to $6,000. That means saving and investing within a TFSA can be an even more attractive option. Chris Gandhu, High Net Worth Planner at TD Wealth, talks to Kim Parlee about the changes, and what they might mean for your portfolio.
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Some good news for those of us with a TFSA-- the annual contribution limit has been raised for 2019. That means that saving and investing with a tax-free savings account is an even more attractive option.
Chris Gandhu is a high net worth planner at TD Wealth. And he's here to talk about those changes and what they might mean. Let's start with just the changes themselves. What are they?
Right. So the TFSA contribution limit, which is $5,500 for 2018, is going up to $6,000 for 2019. This is an inflation adjustment. Back in 2009, when TFSAs first started, it started off at $5,000. So we're just playing inflation catch-up.
Yep, nice-- which is great. We get that extra room. Now, I know we're going to bring up a chart here. We can talk to people about what, over time, we've been able to contribute. So, as you mentioned, back in 2009, it started off at $5,000. There's a look at it right now. So cumulatively, we are now able-- we'll have-- be able to contribute up to 2019-- up to $63,500.
Right. So although the annual limit seems small, cumulatively, it is significant, especially for a family-- that you have three or four individuals. You can all contribute to it. And it's also a nice way, if you're, for instance, gifting money to your spouse-- well, you might as well use it to gift into the TFSA. At the very least, there is no attribution of income back to you, because the TFSA doesn't earn any taxable income.
That's great. What about flexibility? Because the one thing that the TFSA has provided people, different from an RRSP, if you're using it to save for that, is the flexibility. You can take money in and out.
That's exactly right. So when you compare it to an RRSP, where there's taxation-- because any withdrawals are treated as income-- TFSA is not only tax-free growth, the withdrawals are also tax-free. So it's a fantastic vehicle for that. Plus you get whatever you've withdrawn-- you get to put that money back in without affecting your contribution limits. The only catch is that refresh only happens in Jan 1 of the following year. So if I take some money out today, I have to wait until Jan 1, 2019, to be able to refresh it.
Anything-- in your experience, do you think these get used the way they should be? Do people maximize them as much as they should?
I think they should deserve more attention. It is a great short-term and long-term savings vehicle. Again, comparing it to RSPs, at some point, an RSP has to mature into a pension and has to start paying out. A TFSA doesn't.
So if you have the extra money, you should contribute. In fact, contribute early in the year because it's simply time value of money. You want that money working for you in a tax-free environment. Just the one thing to watch out for-- know your contribution limits. You don't want to go offside, because then there are, of course, penalties.
Chris, thanks so much.
You're welcome.
Chris Gandhu, high net worth planner with TD Wealth.
Chris Gandhu is a high net worth planner at TD Wealth. And he's here to talk about those changes and what they might mean. Let's start with just the changes themselves. What are they?
Right. So the TFSA contribution limit, which is $5,500 for 2018, is going up to $6,000 for 2019. This is an inflation adjustment. Back in 2009, when TFSAs first started, it started off at $5,000. So we're just playing inflation catch-up.
Yep, nice-- which is great. We get that extra room. Now, I know we're going to bring up a chart here. We can talk to people about what, over time, we've been able to contribute. So, as you mentioned, back in 2009, it started off at $5,000. There's a look at it right now. So cumulatively, we are now able-- we'll have-- be able to contribute up to 2019-- up to $63,500.
Right. So although the annual limit seems small, cumulatively, it is significant, especially for a family-- that you have three or four individuals. You can all contribute to it. And it's also a nice way, if you're, for instance, gifting money to your spouse-- well, you might as well use it to gift into the TFSA. At the very least, there is no attribution of income back to you, because the TFSA doesn't earn any taxable income.
That's great. What about flexibility? Because the one thing that the TFSA has provided people, different from an RRSP, if you're using it to save for that, is the flexibility. You can take money in and out.
That's exactly right. So when you compare it to an RRSP, where there's taxation-- because any withdrawals are treated as income-- TFSA is not only tax-free growth, the withdrawals are also tax-free. So it's a fantastic vehicle for that. Plus you get whatever you've withdrawn-- you get to put that money back in without affecting your contribution limits. The only catch is that refresh only happens in Jan 1 of the following year. So if I take some money out today, I have to wait until Jan 1, 2019, to be able to refresh it.
Anything-- in your experience, do you think these get used the way they should be? Do people maximize them as much as they should?
I think they should deserve more attention. It is a great short-term and long-term savings vehicle. Again, comparing it to RSPs, at some point, an RSP has to mature into a pension and has to start paying out. A TFSA doesn't.
So if you have the extra money, you should contribute. In fact, contribute early in the year because it's simply time value of money. You want that money working for you in a tax-free environment. Just the one thing to watch out for-- know your contribution limits. You don't want to go offside, because then there are, of course, penalties.
Chris, thanks so much.
You're welcome.
Chris Gandhu, high net worth planner with TD Wealth.