In case you’ve been living under a rock for the past few weeks, the federal government recently increased the annual Tax Free Savings Account contribution room to a hefty $10,000…(If you’re not sure what a Tax Free Savings Account is, here is some basic information for you to get started).
Yup. That’s $4500 annually more than the $5500 before the big announcement.
When I heard the news, I was quite excited for this increased contribution room and contributed an additional $4500 to my Tax Free Savings Account (as known as my Tax Free Trading Account) right away. Then I panicked for a little bit because I was worried that I read it wrong somewhere and should not be contributing to the account until the law passed. However, I was reassured that this was not the case, according to the Financial Post. The additional contribution room is in effect retroactively since January 1, 2015.
Thank goodness for that, because I do not want to face the over contribution penalty again (well, I didn’t end up having to pay the over contribution penalty, but it was a good lesson to not over contribute!!).
The TFSA Got a Makeover!
I’m a big fan of analogies, and one way that helped me understand the difference between a TFSA and an RRSP is that they are like siblings- check out my old post on the TFSA and RRSP Head to Head Comparison. Opposite siblings. With the RRSP, you save with pre-tax income but you end up getting taxed later in life when you withdraw the money. With the TFSA, you contribute with after-tax income and you don’t end up getting taxed when you withdraw the money.
Well, with the recent increase to $10,000 contribution from from the initial $5000 contribution room, then the $5500 contribution room, the TFSA sibling (previously unpopular, kind of neglected, mis-used because it is misnamed and most people put their money in a High Interest Savings Account earning less than inflation) got a HUGE makeover. Continue Reading