The federal government kept the annual TFSA contribution limit at $7,000 for 2025 – the same limit we had in 2024. It’s still good news for Canadian savers and investors, who as of January 1, 2025, will have a cumulative lifetime TFSA contribution limit of $102,000.

The Tax Free Savings Account (TFSA) was introduced in 2009 by the federal conservative government. The TFSA limit started at $5,000 that year – an amount that “will be indexed to inflation and rounded to the nearest $500.”

With inflation starting to cool off at an average rate of 2.7% in 2024 (versus 4.7% in 2023 and 6.3% in 2022) it will be a coin flip as to whether the annual TFSA limit will increase in 2026.

TFSA Contribution Limit Since 2009

The table below shows the year-by-year historical TFSA contribution limits since 2009.

Note that the maximum lifetime TFSA limit of $102,000 applies only to those who were 18 or older as of December 31, 2009. If you were born after 1991 then your lifetime TFSA contribution limit begins the year you turned 18.

You can find your TFSA contribution room information online at CRA My Account, or by calling Tax Information Phone Service (TIPS) at 1-800-267-6999.

TFSA Overview

The Tax Free Savings Account is a flexible vehicle for Canadians to save for a variety of goals. You can contribute every year as long as you’re 18 or older and have a valid social insurance number.

That means young savers can use their TFSA contribution room to establish an emergency fund or save for a down payment on a home. Long-term investors can use their TFSA to invest in ETFs, stocks, or mutual funds and save for the future. Retirees can continue to save inside their TFSA for future consumption or withdraw from their TFSA tax-free without impacting their Old Age Security or GIS.

Unlike an RRSP, any amount contributed to your TFSA is not tax deductible and so it does not reduce your net income for tax purposes.

• Your contribution room is capped at your TFSA limit. Excess contributions will be taxed at 1 percent per month
• Any withdrawals will be added back to your TFSA contribution room at the start of the next calendar year
• You can replace the amount of your withdrawal in the same year only if you have available TFSA contribution room
• Any income earned in the account, such as interest, dividends, or capital gains is tax-free upon withdrawal

How to Open a TFSA

Any Canadian 18 or older can open a TFSA. You are allowed to have more than one TFSA account open at any given time, but the total amount you contribute to all of your TFSA accounts cannot exceed your available TFSA contribution room.

To open a TFSA you can contact any bank, credit union, insurance company, trust company or robo-advisor and provide that issuer with your social insurance number and date of birth.

The most common type of TFSA offered is a deposit account such as a high interest savings account or a GIC.

You can also open a self-directed TFSA account where you can build and manage your own savings and investments.

Qualified TFSA Investments

That’s right – you’re not just limited to savings accounts and GICs. Generally, you can put the same investments in your TFSA as you can inside your RRSP. These types of allowable investments include:

• Cash
• GICs
• Mutual funds
• Stocks
• Exchange-Traded Funds (ETFs)
• Bonds

You can contribute foreign currency such as USD to your TFSA. Note that your issuer will convert the funds to Canadian dollars. The total amount of your contribution, in Canadian dollars, cannot exceed your TFSA contribution room.

If you receive dividend income from a foreign country inside your TFSA, the dividend income could be subject to foreign withholding tax.

Gains Inside Your TFSA

Some investors may be tempted to put risky assets inside their TFSA account to try and earn tax-free capital gains. There are two advantages to this strategy:

1. Earn tax-free capital gains
2. Potentially increase your available TFSA contribution room

For example, I maxed out my annual TFSA contributions in 2009, 2010, and 2011. That meant contributions of $15,000. I invested these funds in dividend paying stocks, which, over time, increased the total portfolio value to $19,500.

I withdrew the entire amount in mid-2011 to top-up the down payment on our new house. When the calendar turned to 2012, I had a new lifetime TFSA contribution limit of $24,500.

How did I have $24,500 in unused TFSA contribution room available even though most other Canadians had $20,000?

Any TFSA withdrawals are added back to your available TFSA contribution room at the beginning of the next calendar year. That amount was $19,500. In addition, the 2012 TFSA limit of $5,000 was added to my overall TFSA contribution room for a total of $24,500.

Losses Inside Your TFSA

The risk cuts both ways, though.

Let’s say the dividend stock picks inside my TFSA incurred a loss of $4,500. I contributed $15,000 but they’re only worth $10,500 when I need to withdraw the money for my house down payment.

The next calendar year, after I withdrew the funds, I would have only saw $10,500 added back to my TFSA contribution limit, plus the new 2012-dollar limit of $5,000 – for a total TFSA limit of $15,500.

The other downside to an investment losing money inside your TFSA is that you cannot claim a capital loss.

“In kind” TFSA Contributions

You can make “in kind” contributions to your TFSA – for example transferring stocks or funds held in your non-registered account to your TFSA.

According to the CRA, you will be considered to have disposed of the security at its fair market value at the time of the contribution. If that value is more than the original cost of the security, you will have to report the capital gain on your income tax return. However, if the value is less than the original cost, you cannot claim the resulting capital loss.

The amount of the contribution to your TFSA will be equal to the fair market value of the property.

This can be an excellent strategy for seniors and retirees to transfer securities from their taxable investment account and into their sheltered “tax-free” TFSA.

Transfer from your RRSP

You can also transfer an investment from your RRSP to your TFSA. Again, according to the CRA, you will be considered to have withdrawn the investment from the RRSP at its fair market value.

This amount is reported as an RRSP withdrawal and must be included in your income for that tax year.

“The tax withheld on the withdrawal can be claimed at line 437 of your income tax and benefit return.”

If the transfer from your RRSP to TFSA takes place immediately, the same value will be used as the amount of the contribution to the TFSA. If the contribution is delayed or deferred, the amount of the contribution will be the fair market value of the investment at the time of that contribution.

TFSA Over-Contribution Penalty

Unlike the RRSP Over-Contribution limit of $2,000, TFSAs have no such room for error.

Some Canadians have run afoul of the CRA for over-contributing to their TFSA. The excess contributions are subject to a 1% penalty tax per month. For example, if you’ve over-contributed $1,000 you would have to pay $10 per month.

If you receive a TFSA excess amount letter from the CRA you should remove the excess amount immediately. Go to your My CRA Account for your room limit as of January 1, or complete Form RC343, Worksheet – TFSA contribution room if you have contributed to your TFSA in the current year.

TFSA Impact on Government Benefits

The TFSA has been a tremendous boon for seniors and retirees. The main advantage is that any income earned inside your TFSA, or amounts you withdraw from your TFSA, won’t impact means-tested government benefits such as Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).

That means retirees could get a portion of their retirement income from their TFSA and not have that amount increase their total net income. This is beneficial to either preserve GIS benefits or to avoid the dreaded OAS clawback.

TFSA income or withdrawals will also not affect employment insurance benefits, or your eligibility for other credits such as the Canada child benefit (CCB), the working income tax benefit (WITB), the GST credit, or the age amount.

TFSA Beneficiaries and Death of TFSA Holder

There are two types of TFSA beneficiaries:

1. A survivor who has been designated as a successor holder
2. Designated beneficiaries, such as a survivor who has not been named successor holder, a former spouse or common-law partner, children, and qualified donees

A successor holder is a spouse or common-law partner of the holder at the time of death and is named by the deceased as the successor holder of the TFSA.

The successor holder acquires all of the rights of the holder, including the right to revoke any beneficiary designation. This spouse or common-law partner becomes the new TFSA account holder.

The TFSA continues to exist and both its value at the date of the original holder’s death and any income earned after that date continue to be sheltered from tax under the new successor holder.

The successor holder can make tax-free withdrawals from the deceased holder’s TFSA account. He or she can also make new contributions to that account, subject to their own unused TFSA contribution room.

Investing Ideas for your TFSA

The TFSA is an incredible savings tool. Low income earners should primarily use their TFSA to save for retirement, while higher income earners should maximize their RRSP contributions first, but ideally contribute to both their RRSP and TFSA.

Related: A Sensible RRSP vs. TFSA Comparison

Here are my recommendations for the best TFSA investments for long term savers:

Invest with a Robo Advisor: Robo-advisors offer Canadians an easy and hands-off way to automatically invest for the future. Open a TFSA at a robo-advisor like Wealthsimple and you can invest in a diversified portfolio of index ETFs for a management fee of 0.50 percent, plus the MER of the ETFs, for a total cost of about 0.65 percent.

DIY Invest with ETFs: Investors who are more inclined to take the wheel themselves can open a self-directed TFSA account at a discount broker like Questrade and build their own investment portfolio. With the introduction of one-ticket asset allocation ETFs from the likes of Vanguard, iShares, and BMO, it’s never been easier to build a globally diversified portfolio on the cheap. Vanguard’s VBAL, for example, represents the classic 60/40 balanced portfolio and comes with a MER of just 0.24 percent.

Invest in bank index funds: Maybe you’re more comfortable staying at your home bank and investing through an advisor. Know that every bank offers its own suite of index funds, which are considerably cheaper than their actively managed cousins and tend to outperform. Open a TFSA account at your bank and insist on getting a portfolio of index funds. TD’s popular e-Series funds are the most highly rated and lowest cost of the bunch and will cost around 0.45 percent. Expect the other banks’ index funds to cost closer to 1 percent.

As for me, I’ve explained before exactly how I invest my own money, holding Vanguard’s All Equity ETF (VEQT) across all accounts – including inside my TFSA at Wealthsimple Trade. I prefer to use my TFSA for long-term investing rather than as a place to stash cash in a high interest savings account.

Tax free growth for the win!

I’ve been toying with a savings concept that I’m tentatively calling the TFSA snowball. It’s a play on Dave Ramsay’s “debt snowball” method (his one positive contribution to society) where borrowers pay off their smallest loan balance first, then roll those freed-up payments into the next smallest balance. Rinse and repeat until debt free.

Related: I prefer the debt avalanche where you tackle the highest interest rate balance first.

While it’s rare for my clients to be that heavily indebted, many of them are striving to catch-up on unused TFSA contribution room. After all, money is finite and we can’t do everything all at once. Heck, my wife and I are on our third game of playing TFSA catch-up in the last 15 years!

Indeed, you might have a period of income interruption from a parental leave or career change. Maybe you financed a vehicle and had to temporarily pause TFSA contributions. Perhaps you just had other spending or saving priorities and the TFSA got neglected.

Whatever the case, the TFSA snowball concept is meant to treat your unused contribution room like a five-alarm emergency. That’s right, you’ll aggressively attack these contributions as if you were paying off high interest credit card debt. Within reason, you’re going to throw everything you have at your TFSA until you’ve caught up on all of that unused contribution room.

What’s the payoff? Well, it’s a similar feeling to paying off your consumer debt. All of the money you were allocating towards debt repayment can now be redirected towards savings goals. Same with the TFSA.

Once your TFSA is fully maxed out, you can only contribute the annual limit afterwards – which will feel like a modest amount compared to your previously aggressive contributions.

The extra cash flow is now freed-up to fund other goals, like a new car, dream vacation, extra mortgage payments, lifestyle creep, non-registered investments, etc. The choice is yours!

*this chart presumes the annual TFSA limit increases by $500 in 2026 (to $7,500) and then again in 2029 (to $8,000)

The table above is our own TFSA snowball plan. Aggressive contributions of $28,000 per year (each) for the next three years, followed by a $13,000 contribution (each) in 2028 to fully max our TFSAs.

The payoff after three-and-a-half more years of TFSA catch-up is that we’d only have to contribute the annual limit from 2029 onwards and can redirect those extra catch-up contributions towards other goals.

Right now that’s loosely earmarked for the mortgage – extra lump sum payments to pay off the balance earlier. But the timing also coincides with our kids entering post-secondary years (yikes!) and so we might not want to commit all of those funds until we know exactly where the kids are going and what their funding requirements will be.

We could also simply pay ourselves less, since we topped-up our personal income to do the TFSA snowball in the first place.

Or, without the pressure to save more, we could decide to work a bit less and intentionally earn less income. Like a Coast Fire plan.

There’s also a vehicle purchase to consider – or some modest home renovations.

Who am I kidding? The funds will probably go towards enhancing our travel budget!

In summary, like an aggressive debt repayment plan, a conscious effort to catch-up on unused TFSA contribution room for a few years can dramatically improve your financial picture and give you a host of options to consider afterward.

What are your thoughts on treating your unused TFSA room like a five-alarm emergency? Let me know in the comments.

This Week’s Recap:

I’ve updated my annual reminder on how to crush your RRSP contributions next year by using the T1213 form to reduce withholding taxes at the source. This is a secret weapon for many of my higher-earning clients who contribute significantly to their RRSP each year. Why not get your tax refund upfront on every paycheque instead of waiting until you file your taxes?

Last week I wrote about lifestyle creep not necessarily being a bad thing.

We’re off to our favourite city in the world – Edinburgh – next week for a 10-day holiday. It’ll be our fourth time back to “the most beautiful of all the capitals of Europe.” We can’t wait!

“This is a city of shifting light, of changing skies, of sudden vistas. A city so beautiful it breaks the heart again and again.” – Alexander McCall Smith

Weekend Reading:

If you’re still working and contributing to CPP, or if you’re retired and still waiting to take CPP, your expected CPP benefits increase based on wage inflation. But if you’re already receiving CPP benefits, your annual increase is based on price inflation.

Typically, wage inflation is about 1% higher than price inflation. But that was not the case in 2022 when prices rose faster than wages. That year, Fred Vettese pointed out, was an anomaly where you would have been better off taking CPP in December instead of January so you’d benefit from the price inflation bump instead of the wage inflation bump.

Complicated stuff, right? So what about this year? Fred Vettese is back to answer that question now that the data is out. 

Of Dollars and Data blogger Nick Maggiulli is doing the lord’s work busting the persistent myth that Vanguard, BlackRock, and State Street are a secret cabal that control the world.

Here’s what football (soccer) fans can teach investors:

“One of the biggest behavioural challenges fans and investors face is the tendency to overreact. Fans often make snap judgments, calling for managerial changes or criticising players after just one bad game. Investors, too, can fall into the trap of panic-selling during a market downturn or impulsively chasing after the latest “hot” stock, fund or theme.”

How do people react to financial advice? It depends on who is receiving it, who is giving it, and what it consists of.

Money Architect’s Russell Sawatsky tackles a thorny issue for DIY investors – at what age do you hand over the reigns?

Will buying a home make you happier? The evidence is mixed, at best:

A Wealth of Common Sense blogger Ben Carlson answers a reader question about whether they need five years of cash reserves in retirement.

Here’s Carlson again discussing the perils of planning for early retirement:

“Your two best forms of risk management in retirement are diversification and flexibility with your plan. Every strategy comes with trade-offs. Unfortunately, there is no investment panacea that offers 100% certainty during retirement.”

Finally, here’s Jason Heath with the ins and outs of consolidating your registered accounts for retirement income.

Happy Thanksgiving, and have a great weekend!

*Updated for October 2024*

Many high income earners struggle to max out their RRSP deduction limit each year and as a result have loads of unused RRSP contribution room from prior years. While we can debate about whether it’s appropriate for middle and low income earners to contribute to an RRSP or a TFSA, the reality for high earning T4 employees is that an RRSP contribution is the best way to reduce their tax burden each year.

The RRSP deduction limit is 18% of your earned income from the prior year, up to a maximum of $32,490 for the 2025 tax year, plus any unused RRSP room from previous years.

An employee who earns $125,000 per year can contribute $22,500 annually to their RRSP. While that’s straightforward enough, coming up with $1,875 per month to max out your RRSP can be a challenge. An even greater challenge is catching up on unused RRSP room from prior years. 

Related: So you’ve made your RRSP contribution. Now what?

Let’s say you live in Ontario, earn a salary of $125,000 per year, and you want to start catching up on your unused RRSP contribution room. Your gross salary is $10,416.67 per month and you have $2,627.08 deducted from your paycheque each month for taxes, leaving you with $7,789.59 in net after-tax monthly income.

Your goal is to contribute $2,000 per month to your RRSP, or $24,000 for the year. This maxes out your annual RRSP deduction limit ($22,500), plus catches up on $1,500 of your unused RRSP contribution room from prior years. Stick to that schedule and you’ll slowly whittle away at that unused contribution room until you’ve fully maxed out your RRSP. Easy, right?

Unfortunately, you don’t have $2,000 per month in extra cash flow to contribute to your RRSP. After housing, transportation, and daily living expenses you only have about $1,200 per month available to save for retirement.

No problem.

That’s right, no problem. Here’s what you can do:

T1213 – Request To Reduce Tax Deductions at Source

Simply fill out a T1213 form (Request to Reduce Tax Deductions at Source) and indicate how much you plan to contribute to your RRSP next year. Submit it to the CRA along with proof –  such as a print out showing confirmation of your automatic monthly deposits. The CRA will assess the form and send you back a letter to submit to your human resources / payroll department explaining how they should calculate the amount of tax they withhold for the year.

New: You can now submit the T1213 form online by scanning your form and supporting documents and sending them through the “Submit document online” service in your CRA My Account.

Note that you’ll need to fill out and submit the form every year. It’s best to do so now (mid October, early November) for the next calendar year so you have time for the form to be assessed and then you can begin the new year with the correct (and reduced) taxes withheld.

That said, the CRA will approve letters sent throughout the year – it just makes more sense to line this up with the start of the next calendar year.

Reducing taxes withheld from your paycheque frees up more cash flow to make your RRSP contributions. It’s like getting your tax refund ahead of time instead of waiting until after you file. Let’s see how that would work using our example from Ontario.

You’ve signalled to CRA that you plan to contribute $24,000 to your RRSP next year. In CRA’s eyes, that brings your taxable income down from $125,000 to $101,000. This will make a significant difference to your monthly cash flow.

Recall that you previously had $2,627.08 in taxes deducted from your monthly paycheque. After your T1213 form was assessed and approved, the taxes withheld from your paycheque each month goes down to $1,831.08 – freeing up an extra $796 in monthly cash flow that was previously being withheld for taxes. That’s an extra ~$9,552 that you can use to crush your RRSP contributions next year.

Now, to be clear, you need to follow through and make the $24,000 RRSP contributions that you promised to CRA. Otherwise you’ll face a bigger tax bill for the next tax year, and risk not getting the T1213 form approved again.

Once your T1213 form has been assessed and approved you’ll receive a letter that looks something like this to give to your employer:

The biggest advantage to reducing your taxes withheld at the source is to increase your cash flow so you can make those big RRSP contributions. Otherwise, your options are to take out an RRSP loan to help reach or exceed your deduction limit, or wait for your tax refund and then contribute that lump sum along with your smaller monthly contributions.

**Optimize Your RRSP**

I have a general savings philosophy that goes something like this:

1. Utilize employer matching savings plan – basically take advantage of your employer match, it’s free money!
2. Optimize your RRSP contributions – contribute enough to bring your taxable income down to the bottom of your highest marginal tax rate
3. Maximize TFSA – max out your TFSA, eventually.
4. Prioritize short-term goals – once the first three goals have been funded, extra cash flow should be allocated to short-term goals such as buying a new vehicle, taking a dream vacation, renovating your home, funding a parental leave or early retirement, etc.

On the RRSP front, I use EY’s excellent tax calculators & rates page (updated annually) and the Canadian personal tax rates by province sections to determine what those marginal tax brackets are for my clients.

What does optimizing mean? For instance, in the example we’ve been using above (Ontario worker with $125,000 gross income) it might make sense to only contribute $13,266 to their RRSP to bring their taxable income down to $111,734 – the bottom of the 43.41% marginal tax bracket).

That way, every single dollar contributed to the RRSP is going to save 43.41 cents in taxes.

Contribute one more dollar, and that dollar will only receive 37.91 cents in tax relief.

Of course, it might be perfectly sensible to contribute more and get a blended tax deduction (some at 43.41% and some at 37.91%). Maybe you’d want to bring down your income to the bottom of the 37.91% marginal tax bracket, but no further. 

Final Thoughts

Back to our Ontario example, let’s say you did not fill out the T1213 form and instead just contributed your available cash flow of $1,200 per month or $14,400 per year. That would reduce your taxable income to $110,600 and give you a tax refund of $6,189. 

You could do anything with that tax refund, and a lot of surveys suggest Canadians are more inclined to spend their refunds because they’re seen as windfalls. 

Meanwhile, had you simply filled out the T1213 form and then contributed $2,000 per month to your RRSP, you’d have reduced your tax bill by $9,552 and have nearly $10,000 more saved inside your RRSP.

Who’s crushing it, now?