The Tax-Free Savings Account (TFSA) in Canada is a registered tax-advantaged investment account whose unique feature is tax-free money growth. Unlike the older Registered Retirement Savings Plan (RRSP), TFSA withdrawals are tax-free.
According to the Annual Investment Survey results released by Bank of Montreal in January this year, 62% of Canadians use the TFSA for saving and investing. Also, the same survey showed that overall balances have risen by 53.44% from five years ago. The mean TFSA balance in 2023 is $41,510 versus $27,053 in 2018.
For 2024, the contribution limit is $7,000, while the total possible contribution room (cumulative from 2009) is $95,000. Only account holders born before 1991 can deposit or contribute the maximum, and those born after will have smaller total contribution limits.
TFSA balance at median age
Based on the data from worldometers.info, the median age in Canada as of 2024 is 41 years (40.6). Most TFSA users may be eligible to contribute the maximum limit, although giving a precise balance at age 41 would be difficult. However, if the average TFSA balance is $41,510, it could be anywhere from $53,000 to $69,000.
The estimated TFSA balance could include interest, gains, and dividends earned inside the account until 2023. TFSA users can’t overcontribute, but unused contribution rooms carry over to the following year. To confirm your TFSA balance, visit the Canada Revenue Agency (CRA) website and use its login portal to check your TFSA details.
Build retirement wealth
One compelling reason to maximize TFSA limits is to secure a financial future or build retirement wealth. Most TFSA investors hold dividend stocks and reinvest dividends for faster account balance compounding. Canada’s banking sector is a bedrock of stability, and a big bank stock like National Bank of Canada (TSX: NA) is an ideal anchor.
This $38.33 billion lender is the country’s sixth-largest bank. At $109.85 per share (+10.94% year to date), the dividend offer is 4.01%. Assuming your available contribution room is $38,400 (40% of the cumulative limit since 2009), and you invest the same amount in NA, your TFSA balance will be $69,864.80 in 15 years.
On June 11, 2024, National Bank announced the plan to acquire Canadian Western Bank. Meny Grauman, an analyst at Bank of Nova Scotia, described the deal as a “strategic winner” and is relatively low risk for the larger peers. The $5 billion transaction will enable National Bank to expand its commercial banking portfolio.
Create tax-free passive income
Suncor Energy (TSX: SU) is a suitable TFSA holding if you need to create tax-free passive income. At $51.48 per share (+23.98% year-to-date), the oil bellwether pays a lucrative 4.33% dividend. Your $7,000 TFSA limit in 2024 can purchase 135 shares and generate $75.77 in tax-free quarterly passive income.
The $66.15 billion integrated energy company derives revenue from various sources. In addition to oil sands development & production and offshore oil production, Suncor Energy engages in petroleum refining in Canada and the United States. Its subsidiary, Petro Canada, delivers fuel and service offerings nationwide.
TFSA is for life
Don’t be disheartened if you haven’t contributed enough to your TFSA. Since unused contributions carry forward indefinitely and the TFSA has no lifetime contribution limit, you have time to build retirement wealth or create tax-free passive income.
