With a long-promised bag of tax-break goodies just around the corner for Canadians, I thought I’d take a second to see what this might mean for many of us. Our minister of finance – Mr. Jim Flaherty – has said that as soon as this deficit gets slain (and it looks like it soon will be – eat your heart out OECD brethren) he is not only promising a unique income-sharing program that could help Canadians, but a doubling of the yearly limit that one could shelter inside a tax-free savings account (TFSA) as well.
For personal finance geeks and frugal savers everywhere, this boost to the TFSA limit will effectively mean that almost none of us will ever pay tax on our investment income (assuming no one places a cap on the program going forward) and that could translate into massive gains given enough time.
When you consider that most people out there have currently got about $23,000 of RRSP contribution room every year, this additional $11,000 worth of room in a TFSA will allow us to invest far more than most people will ever have the means to (we’ll get to this in a second). Sure you might have to pay some taxes on the RRSP withdrawals on the back end, but all that compounding gets to occur away from pesky taxation first.
Pay for a House and/or Save for Retirement
In addition to long-term savings (what a TFSA should ideally be used for), Millennials can use the TFSA as a nice spot to save money for a down payment on a house. In some circumstances, it will still make sense for house-savers to use the RRSP program in coordination with the home buyers plan (HBP), but for most of us that are just starting out on the salary grid in our respective fields, we’ll be better off saving that RRSP contribution room for later in the game and using the TFSA instead. Continue Reading