Starting on January 1, 2023, the contribution room to the Tax Free Savings Account will increase from $6,000 to $6,500. If you’re fortunate enough to have any money to invest, take advantage of tax-free growth and invest it under the TFSA umbrella. It should be obvious but I’ll say it anyway. Investments grow faster when Canada Revenue Agency doesn’t tax them.
And if you can’t afford to contribute the full $6,500 in 2023, don’t sweat it! Starting today, invest what you can. That might be $10/day or $25/week. The amount doesn’t matter so much as the actual fact of contributing your money. Set up an automatic transfer so that the money goes into your TFSA. The sooner it’s invested, the sooner you reap the benefits of tax-free compound growth.
Once the money is in your TFSA, invest it in well-diversified, equity-based securities like index funds, exchange-traded funds, or mutual funds. If you like real estate, you can buy REITS. And if you’re into picking individual stocks, you can do that too. When you hold your income-generating investments within your TFSA, the CRA will not tax them. You can reap the dividends, capitals gains, and interest without having to share any of it with the TaxMan.
I wish this account had been called the Tax Free Investment Account. Too many people think that it can only be home to a savings account. This is completely and utterly wrong! You can open a TFSA account at your preferred brokerage, and you should. Ideally, you’re investing for the long-term. Over the long-term, the stock market’s average returns are way higher than the interest paid of your saving account. It’s better to earn higher returns and benefit from tax-free compound growth.
If you were 18 or older in 2009, then your lifetime contribution to the TFSA will be $88,000 starting in 2023. Don’t fret too, too much if you haven’t been able to maximize your contributions each year. Start where you are and do what you can. Inflation is taking an added bite out of everyone’s wallets, so finding the money to fund the Care and Feeding of Future You might not be easy. Regardless of whether it’s easy or hard, you have to do it. When you’re ready to quit working, you’re going to need money to replace your current income. Without solid investments, it’s unlikely that you’ll be able to maintain or improve the lifestyle that you already enjoy.
If you invest wisely and your investments perform very well, you can withdraw each year’s earnings and live off the cashflow. The principal can remain within the TFSA to generate even more tax-free money the following year. Your TFSA has the potential to become a money-making machine for you. The tax-free earnings could supplement your other retirement income if you wanted. Of course, this machine won’t exist if you don’t start investing today.