The New $10,000 TFSA Contribution Limit

The New $10,000 TFSA Contribution Limit

CRA has recently set a new contribution limit of $10,000 but the new measure is still awaiting parliamentary approval. The limit applies to tax-free savings accounts, and Canadians are free to take advantage of it without facing any penalties. The limit was raised from $5,000 to $10,000 and will be effective as of January, 2015. While finance experts point out that it is a good idea to wait until the budget was passed, some Canadians have already made contributions to their TFSA accounts.

Benefits for Users

The new increased limit means that Canadians can contribute more to their TFSA accounts without being penalized for this. This is good news for account holders for a number of reasons, one being that TFSAs allow Canadians to save more money in a tax-sheltered way, be it for college education, a mortgage or car down payment, vacations or holidays, or toward retirement. In general, the goal is to encourage consumers to save more toward mid-term and long-term goals. The new limit also gives Canadians more options, whether a RRSP, TFSA, or another savings solution. A tax-free savings account is a good choice for Canadians who expect to be in a high tax bracket when they reach retirement. The higher limit means that consumers are allowed to save more toward retirement, and those with higher income levels are free to direct a larger portion. Those who are just starting to save early in their careers also benefit from opening a tax-free savings account. The reason is that no taxes are paid on investment yields. This means that you are likely to fall in a high tax bracket once you retire. But the good news is that the tax deduction will be smaller compared to what you will pay should you decide to make withdrawals. Of course, if you have loans and other balances to repay, this is always an option. High interest rates on revolving credit, for example, translate into high charges that accumulate over time. If you don’t have large outstanding balances with excessive fees and interest charges, however, it makes sense to save more cash toward retirement. This is especially important in light of the fact that more and more Canadians are expected to work after the age of 66.


The Prime Minister stated that higher limits on TFSAs won’t be an expensive problem for future generations to solve. Criticism comes from financial experts and opposition politicians who warn that the higher limits will pose major revenue problems over the long term. Some analysts point to the fact that by 2080, limit hikes may have a negative financial impact on the provincial and federal governments. Proponents, on the other hand, highlight the fact that the higher limit encourages people to save more which is good for the economy. Besides, a tax-free savings account is a more flexible option than a registered retirement savings plan and can be used to save toward the purchase of a home.


How Much You’ll Need to Retire

How Much You’ll Need to Retire

If you are close to retirement, you’ve probably looked at different options and accounts already. But even if you are in your early 30s, it is never too early to think ahead and plan for retirement.

Planning Ahead

How much you’ll need to retire depends on your goals, lifestyle, spending habits, income level, household size, and other factors. If you have outstanding balances, whether consumer, student, or mortgage loans, it is a good idea to repay all balances before retirement. You may want to visit your local bank or credit union to check whether early prepayment is an option or your loan comes with a prepayment penalty. The age at which you expect to retire is another issue to factor in. While the average age is 67, this is basically a personal decision that depends on factors such as level of indebtedness, unforeseen circumstances, and of course, choice. Look at your income and expenses to see whether you tend to overspend or live within your means. This is also a good way to estimate how much you can save annually. Finally, there are other factors to consider, including income replacement, additional sources of income, annual salary growth, expected rate of return, life expectancy, and the age you started working and saving, respectively. This will help you to find out whether you are moving in the right direction or need to cut certain expenses or increase your income.

Savings Options

There are plenty of alternatives to consider, depending on your age, risk profile, and so on. You may choose from different high- low-, and medium-risk investment vehicles to build a diversified portfolio. Low-risk solutions include government bonds, cash in your savings account, certificates of deposit, and others. If you are more of a risky type, there are other vehicles to look into, including forex trading, futures and options, microcap stocks, cash value life insurance, precious metals, and others. The choice of investment vehicle depends on your savings, charges and fees assessed, and your goals and needs. In addition, there are solutions that are specifically designed to meet your retirement objectives. You can choose from a range of options, including registered retirement savings plans, guaranteed income supplement, CPP pensions, Old Age Security, and others.

Tools to Use

There are easy-to-use online calculators that help calculate how much you will need. Just enter figures such as the annual yield on balance, annual inflation, and number of years required after and number of years until retirement. For example, if you need an annual income of $45,000, have 15 years left before retirement, and will need about this amount for 20 more years, then you’ll need a total of $6,841,441.06 at a rate of inflation of 2 percent. There are other handy calculators to plug in your retirement and current age as well as your savings rate, current income, and amount saved so far. This will show you whether you are on track or how much you are falling short so far.

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