Because you only start to accumulate TFSA contribution room when you turn age 18 its important to understand what your specific cumulative TFSA contribution room is. This amount will vary by age. The table below assumes no contributions and no withdrawals.
Someone born in 1991 or earlier, who turned 18 in 2009 or earlier, will have the highest cumulative TFSA contribution room at $95,000 in 2024.
But someone born in 1995, who turned 18 in 2013, will have missed the prior 4-years of TFSA contribution room between 2009 and 2012, so their cumulative TFSA contribution room will only be $75,000 in 2024. And someone born in 2001, who turned 18 in 2019, will have missed the prior 10-years of TFSA contribution room between 2009 and 2018, so their cumulative TFSA contribution room will only be $37,500 in 2024.
If you’ve been diligently maximizing your TFSA since it was introduced then it will be worth significantly more than the $95,000 in contributions made. In the table below we benchmark TFSA growth based on asset allocation. The investment growth is based on long-term growth assumptions and provides a good benchmark to understand how your TFSA is doing.
For example, if you had been maximizing the TFSA since 2009 in an 80/20 portfolio of equities/bonds then you could expect to have around $154,519 by the end of 2024. This assumes a low-cost index portfolio with fees of 0.25% or lower. This of course may be higher or lower depending on your actual investment fees and investment growth but it provides a good benchmark.
TFSAs are great, but because they have unique rules they can be a bit confusing. Sometimes it can be hard to keep track of how much you have contributed each year. The most common way that people over-contribute is when they use it as the name suggests, as a savings account, and withdraw and deposit from it multiple times in a year… don’t do this!
For example, if you contribute $1,000 in January, and then withdraw that $1,000 in May, if you choose to re-contribute it again later in November, you will have technically contributed $2,000 into your TFSA that year, even though this is the exact same money.
Essentially, once you deposit money into your TFSA, even if you later withdraw it, it will still count towards the contribution limit.
Also be sure to remember the 18 year old age rule. A 21 year old opening up a TFSA for the first time today does not have the same contribution room of $95,000 that a 45 year old person would have as of Jan 1st 2024. The 45 year old person turned 18 prior to 2009, meaning that every year since TFSAs started, they were entitled to TFSA contribution room, but not the 21 year old.
The consequence for over-contributing is paying 1% on the amount which has gone over the contribution limit, every month until you withdraw the excess. For example, if you over-contribute $1,000 and do not withdraw it for 6 months, you will have to pay $60. If the CRA believes you purposely are over-contributing to your TFSA, you will have to pay 100% tax on anything that went over the limit.
The TFSA is great, it allows your savings and investments to compound tax free. Let’s fantasize for a moment about how large your TFSA could get in the future if you make max contributions and let compounding run wild.
This is a popular topic and something we’ve written about before. My wife and I have a personal goal is to have our TFSAs reach a combined $1M in less than 20-years. This is actually a fairly realistic goal (we hope anyway) and it’s likely we will see our TFSA grow even more in the future.
For someone who’s contributed to the maximum amount since 2009 when the TFSA started it’s not unreasonable to expect they would currently have a balance over $100k+ if they’ve been investing for the last 10+ years.
Let’s assume their TFSA currently sits at $137,249 including investment growth and we can see how it may evolve in the future if they continue to max it out each year.
Max TFSA Contributions
Future Dollars
5.55% Return
Max TFSA Contributions
Today’s Dollars
5.55% Return – 2.0% Inflation
Amazing isn’t it? Having over $2M tax free in the future is a pretty good reason to max your TFSA contribution limit each year.
Estimate Of Future TFSA Contribution Room
Assumes 2.0% Inflation
