Did you know that up to $109,000 worth of tax-free savings account (TFSA) contribution room is available in 2026?
Last year, the Federal Government approved a $7,000 increase to Canadians’ TFSA contribution room. Every Canadian who is 18 or older gets that contribution room this year. Those older than 18 also have accumulated room. The maximum amount, for someone who was 18 in 2009 and hadn’t contributed to a TFSA prior to this year, is $109,000.
$109,000 is a substantial sum of money. Viewed in investment terms: if you invest $109,000 at a 10% annual rate of return for 30 years, you end up with $1.9 million at the end. That’s enough to retire on in today’s money – maybe up it by a million or two to account for the effects of inflation.
So, the TFSA is rapidly turning into a serious wealth-building engine. In the ensuing paragraphs, I’ll explain how you can capitalize on your (up to) $109,000 worth of TFSA contribution room to build nearly $2 million in retirement savings.
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How you could get to $1.9 million in a TFSA
A TFSA maxed out at $109,000 could easily grow to be worth $1.9 million in 30 years’ time. That might sound like an incredible result, but the math behind it is pretty simple.
First, let’s start with the assumption that stocks keep returning about 10% a year on average. If that continues being the case, then investors starting today, invested in passive index funds, should be able to earn 10% a year over the next 30 years.
Next, let’s look at how much an investment growing at 10% a year grows over the course of 30 years. This is given by 1.1 to the power of 30, which works out to 17.4.
Finally, we multiply that by 109,000 to get our ending amount – $1.9 million.
Now, if we were investing in taxable accounts, we’d need to deduct a portion of each year’s gain for taxes. But since TFSAs are completely tax-free (assuming you abide by the account rules), you can take the above math to the bank. $109,000 can easily grow to $1.9 million in a TFSA.
What to invest in
Now that we’ve solidly established that $109,000 can grow to $1.9 million in a TFSA, we can move on to the next logical question:
“What asset actually provides a 10% return over the long term?”
Truthfully, nothing is guaranteed to produce such a return. But index funds have tended to produce such returns over the long term. If you’re Canadian, you pay less dividend taxes on TSX funds than on other countries’ funds. So, TSX exchange-traded funds are a good pile to go looking in.
Take the iShares S&P/TSX Capped Composite Index Fund (TSX: XIC) for example. It’s a Canadian index fund built on the TSX Composite, which is the 250 or so largest publicly traded companies in Canada. XIC actually holds 218 of the 250, meaning that it represents its underlying index pretty well.
An investment in XIC is an investment in the Canadian markets. To that extent, it may just be a wise investment today. Going by XIC’s portfolio data, the fund has a 22 P/E ratio and a 2/6 price to book ratio. Optically, it is cheaper than a typical U.S. index fund. And if the big U.S. tech companies’ AI investments are destined to remain unprofitable, then the TSX is in fact cheaper than the S&P 500 right now. So, there is reason to include the TSX in one’s portfolio. It may just provide the 10% return that investors desire.
