Tax Free Savings Account (TFSA) Limit For 2018

The 2018 limit for TFSA (Tax Free Savings Accounts) is unchanged at $5,500. This limit is indexed to the Consumer Price Index, but the CPI was not high enough to trigger an increase in the TFSA for 2018. If you have never contributed to a TFSA since its inception in 2009, you would have $57,500 of contribution room.

Any resident of Canada who is 18 years of age or older can contribute to a TFSA. The funds within the TFSA can be invested in anything from term deposits to shares. In general, any investment you could have made within your RRSP can be made within the TFSA.

The difference between a TFSA and an RRSP is that the TFSA does not get you a tax deduction when you contribute and does not add to your taxable income when you withdraw the funds. RRSP’s give you a tax deduction when you contribute but you pay tax on any amount that you withdraw from the plan. This is a classic pay me now or pay me later debate. If you can forgo the immediate gratification of a tax deduction, the TFSA is a better strategy because you will have funds accumulating tax free in your TFSA. If you need the immediate hit of the tax deduction, then you will contribute to the RRSP which is a time bomb, sooner or later you will have to pay tax on all of the money in your RRSP.

It is your choice whether you use an RRSP, TFSA or a combination to fund your retirement.

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