Posted at 8:00 a.m.
If we want to put money aside in a TFSA, can we add amounts regularly? Can we put in $1,000 a month instead of a single payment of $12,000 a year? —Chantal Desjardins
Since 2019, it is possible to contribute not $12,000 per year, but $6,000 per year. Previously, the maximum annual amounts were $5,500 from 2016 to 2018, and $5,000 from the creation of the TFSA in 2009 until 2014. 2015 is the only year in which the federal government allowed contributions of 10,000 $.
Even though it’s called a “tax-free savings account” and has the words “savings account” in its name, it’s best not to use the TFSA as a simple savings account gives no interest, even very, very little.
It’s the second part of its name that matters most: “tax-free”.
You put money in the TFSA hoping to make the most possible returns, according to your investor profile and risk tolerance, because these returns will not be taxable. Unlike non-registered investments.
The confusion about the contribution at the beginning of the year surely stems from general and widespread advice from financial planners.
“It’s better to put the amount at the beginning of the year, because we will benefit from the beginning of the year from the tax shelter for the return,” explains financial planner Chantal Matos, advisory director at Private Wealth Management. FMOQ funds.
“If we can’t put the maximum contribution at the start of the year, that’s not a bad thing either. Because by buying shares or funds at different times of the year, once a month for example, you buy at different prices. So we take advantage of market declines and end up at the end of the year with an average price. »
As for payments, Chantal Matos reminds us that the TFSA works like any other form of savings. “We can make payments every week, every month,” she explains. I have clients who invest every two weeks or every month. Whether it’s RRSPs, RESPs, TFSAs or non-registered investments, you can schedule savings payments. »
The planner warns people who would like to use the TFSA to do car repairs next month or go on vacation in two months.
“If you put money in a TFSA and take it out the following month, you won’t be able to enjoy the benefits of that vehicle. It’s to put money aside, but in the medium or long term. Returns are tax sheltered. »
Unlike an RRSP, contributions to a TFSA do not give a tax deduction. However, withdrawals are not taxable, they are not added to income, as do RRSP withdrawals or, after age 71, RRIFs.
Contribution room is cumulative. Thus, if you withdraw funds during the year, you do not lose the contribution room. They can be reused the following year. In 2022, the total TFSA contribution amount is $81,500.
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