The Complete Guide To TFSA Contribution Limit In 2019 [Limit Increased]

With TFSA(Tax Free Savings Account) limit in 2019 increased by a marginal $500, it is possible to set aside some money in eligible investments and ensure tax free growing’s throughout the lifetime.

The TFSA does allow tax-free earnings of capital, dividends and interest. It is also possible to withdraw amount tax-free from TFSA savings at any point of time and for any reason.

TFSA History

It was Jim Flaherty, the former Canadian Federal Finance Minister who had introduced this tax free savings account in 2008. As per C.D. Howe Institute, this was an exciting tax policy measure taken by the government.

It also got support from Bank of Montreal, Canadian Bankers Association, Canadian Taxpayers federation, Canadian Independent Business Federation and Canadian Commerce Chamber.

TFSA Contribution Limit 2019

It is the CRA that tends to determine the TFSA Contribution Limit amount that can be deposited into the TFSA accounts annually. Even if it is not used, the limit accumulates with time. The annual limit for 2019 is $6,000, while $63,500 is the cumulative limit. What does this mean for you?

Lets look at the TFSA account contribution limit over the years :

YearsTFSA Annual LimitCumulative Total
2009 – 2012$5000$20000
2013  – 2014$5500$31000
2015$10000$41000
2016 – 2017$5500$52000
2018$5500$57500
2019$6000$63500
  • If TFSA amount has not been withdrawn last year, then in 2019, the cumulative $63,500 limit can be contributed minus the already contributed amount.

  • If no TFSAs exist, then $63,500 of full limit can be contributed this year.

  • If TFSA amount has already been withdrawn last year, then $63,500 cumulative limit can be contributed this year, minus the amount already contributed, minus amount withdrew last year.

Several TFSA options are available to meet the specific needs of investors, including term deposits, savings accounts, stocks & bonds and mutual funds.

TFSA or RRSP?

This is a question asked by many. Both TFSA (Tax-Free Savings Accounts) & RRSP (Registered Retirement Savings Plans) do provide lots of beneficial features to help people save money for their retirement or to meet other savings objective. Getting to know about the pros & cons of both can help you to take the right decision.

TFSA Pros

  • This tool allows you to invest in different products and enjoy complete tax-free returns. Funds can also be drawn from the TFSA account whenever desired and this amount will not be added to the income tax.

  • No fees are charged at branch level upon withdrawal of funds at the financial institution. However, some accounts may invite charges like investment advisor accounts.

  • If the choice is to be in higher or within the same income bracket during retirement years, then TFSA is a better choice.

  • It can act similar to that of an estate tool allowing passage of tax-free funds to the family members and thereafter.

TFSA Cons 

  • For the Invested amount, no break is received on income tax. Hence, those who need to meet annual income tax bill or is self employed or perhaps investing on retirement to save on income tax may find RRSP to be a better choice.

  • No withdrawal restrictions apply unless stipulated by TFSA investment products. Hence, TFSAs are treated by many as a savings or checking account, making regular withdrawal and deposits. However, the amount to contribute is bound by legal limits.

  • Funds can be easily ‘borrowed’ from long term savings, thereby losing benefits offered on compound interest.

tfsa limit 2019

RRSP Pros 

  • An excellent retirement savings tool, allowing to invest and promotes growth.

  • Non-RRSP investments invite tax payment twice a year, on initial income and income from other investments. But with RRSP investment, income tax break can be enjoyed on the invested amount and then on remaining amount in RRSP.

  • The time final withdrawal will be done from the RRSP account, you will be in lower tax income bracket and be retired. Gains are also sheltered.

  • Early withdrawal of money is allowed from RRSP in two instances without inviting additional income tax. One being when purchasing the first home, where withdrawal limit is $25,000 without tax or penalty and 15 years repayment time. To pay post –secondary education, RRSP withdrawal invites similar exception.

RRSP Cons 

  • Withdrawal amount is taxable income at higher rate, if before retirement.
  • RRSP withdrawal before retirement invites higher tax. You also lose the benefits derived from income sheltering in the RRSP on early withdrawal. Also is to be paid withdrawal fees.
  • RSP room is lost on withdrawal of funds and it cannot be replaced unless withdrawal was meant for education or buying a home.

In short, both TFSAs & RRSPs are excellent long-term investment tools.

Best Canadian TFSA Savings Accounts Right Now

Once the decision is made to invest in TFSA, the next step will be to search for the top banks that offer the top TFSA savings account.

  • Motive Financial Motive Savings Account: It offers competitive rates of 2.4% along with unlimited free transfers and withdrawals.

  • Alternate Bank Savings Account: It offers 2.35% interest rate including unlimited free debits and withdrawals. It does not invite any monthly fee or minimum balance required. Account can be opened from anywhere in Canada.

  • Implicit Financial TFSA: It offers 2.4% interest rate along with one monthly withdrawal and unlimited deposits.

  • Tangerine Tax-free Savings Account: The rates offered for new clients are 3% for initial 182 days and thereafter at 1.25%. For current clients, it is 1.25%. It does offer unlimited free transfers, no maintenance of minimum balance or fees.

  • BMO Savings Account: For TFSA account, Bank of Montreal offers 3.25% promotional rate. But after 15th March, 2019, rate is likely to drop to 0.75%.

  • CIBC Tax-Advantage Savings Account: New deposits are offered 3% promotional rate. On completion of promotion period, offer is likely to drop to 1.15%.

Why Choose TFSA over RRSP? Top 5 Reasons 

This is a wonderful savings vehicle although its contribution limit has been reduced by almost by half. Some reasons to have TFSA account are as follows:

  • Maxed out on RRSP contribution room: TFSA is wonderful choice if the plan is to reduce the tax amount. If 71+ in age, then RRSP contribution is restricted. If you turn 71 by December 31 of a year, then you are required to use the RRSP funds to purchase annuity or withdraw the entire amount from RRSP to convert into RRIF (Regd. Retirement Income Fund). TFSA contribution allows tax shelter.

  • Reduce taxes on investments made: Taxes are to be paid on any earned interest income if possessed high interested non-registered savings account or GIC in non-registered account. Investing $5,000 to make annual interest of $100 will not invite tax. Benefits can be derived on stock investment in TFSA.

  • Be in higher tax bracket after retirement: Although many lower tax bracket after retirement, some low-income citizens might avail higher income as they start receiving OAS (Old Age Security) & Canada Pension Plan benefits including GIS (Guaranteed Income Supplement). TFSA withdrawals will not reduce income tested benefits.

  • Avail more contribution room annually: To avail contribution room in RRSP, income needs to be earned. With more earnings, it is possible to derive more contribution room to annual maximum which in 2016 was $25,730. Additional contribution room can be enjoyed with TFSA, even if income is not present. Also, similar additional contribution room amount can be availed annually like other 18+ age citizens. 

  • Greater flexibility: Although not a typical savings account, the TFSA allows investment in GICs, bonds, stocks and mutual funds. It can also be used to create retirement savings, to buy a home or to come up with emergency fund, or all the three. When withdrawal is concerned, it is possible to withdraw any amount. There is no need to re-contribute the withdrawn amount. If maxed out of TFSA and the desire are to re-contribute the availed amount, then you need to wait till the start of the next year to do so.

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Key Features & Investment Rules For TFSA 

  • Tax Treatment: It is from after-tax income that contributions are made. But earnings within account and withdrawal do not invite tax.

  • Eligibility: Citizens above age 18+ and having valid Social Insurance Number provided by the government authority and a resident of the country are eligible for TFSA. A non-resident can also open up TFSA account for income tax purpose with valid SIN, but with monthly tax of 1% to be paid to ensure contribution remains within the account.

  • Annual contribution limit: As of 2019, it is $,6000 annually, raised from $5,500 last year’s limit.

  • Over-contribution penalty: If more than allowable limit is contributed to the account accidentally, it invites tax penalty of 1% of the highest TFSA excess amount in the month for every month until in excess contribution position.

  • Withdrawals: Funds can be withdrawn at any point of time. The withdrawn amounts in any given year can be added back the next year to the contribution room, irrespective of the withdrawn amounts are from investment earnings or original contribution.

  • Contribution room carry-forward: It is possible to carry forward and use all unused contribution amounts. If contributions were never made to the TFSA and in 2009, if you were 18+, then in the contribution room as on 2019 you will have an accumulation of $63,500.

Please let us know your thoughts and comments below. 

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2 thoughts on “The Complete Guide To TFSA Contribution Limit In 2019 [Limit Increased]

  • February 25, 2019 at 2:41 pm
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    Fantastic information. I was not sure what the TFSA limit was increased to or even how it would effect my decision. I feel like even though I am a higher earner, TFSA is better. I was told I should go with RRSP but it just doesn’t match my retirement plans.

    Reply

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