The latest Tax-Free Savings Account (TFSA) figures for the 2024 tax year are out. A 30-year-old Canadian had an average TFSA balance of $18,475. Is this figure good or bad? If you were 30 in 2024, you had a TFSA contribution room of $75,000. Note that your TFSA contribution starts accumulating when you turn 19. Going by the contribution room, Canadians used only 23% of it, hinting at underutilization of the account.
| Age Group (2024 tax Year) | 25–29 | 30–34 |
| Average Contribution | $7,644 | $8,938 |
| Avg Fair Market Value (FMV) | $13,967 | $18,475 |
| Cumulative Contribution (CC) | $43,000 | $75,000 |
| FMV/ CC | 29% | 23% |
Source: Getty Images
How to improve your TFSA balance?
Many millennials and Gen Zs fail to understand the true potential of the TFSA and use it as a normal savings account. They frequently withdraw from it as TFSA withdrawals are tax-free. However, this account can help you unlock tax-free compounding if you stay invested in the right stocks for the long term. Let’s understand this with an example.
Buy and hold high growth and high yield stocks in TFSA
The average TFSA contribution increased to $8,938 in 2024, as against $8,173 in the 2023 tax year. Let’s say you made a similar investment in the 2023 tax year in two no-brainer stocks like Shopify (TSX: SHOP) and Enbridge (TSX: ENB). A $4,086 investment in each of the two stocks on January 2, 2023, would have given you a TFSA balance of $17,435 in 2024. This is just a one-year investment.
| Stock | Investment | Stock Price on Jan 1, 2023 | Stock Price on Dec 31, 2024 | Number of Shares | Value on Dec 31,2024 |
| Shopify | $4,086 | $49.6 | $156 | 82 | $12,792 |
| Enbridge | $4,086 | $53.00 | $60.30 | 77 | $4,643 |
| Total | $8,172 | $17,435 |
Enbridge’s dividend per share in 2023 ($3.55) and 2024 ($3.66) adds a cumulative income of $555.17 over and above the $17,435 balance. And all this money is tax-free, as the Canada Revenue Agency (CRA) allows your money to grow tax-free. Even now, the two stocks are worth buying and holding for the long term.
Reinvest and rebalance
In fact, you can enhance these returns by using the Enbridge dividend to buy high-growth stocks like Celestica or a technology ETF like the iShares NASDAQ 100 Index ETF (CAD-Hedged).
With Shopify, you can use its seasonality factor and sell a small portion of shares in November and February peaks to book profits. These profits can be reinvested in Shopify in the March dip to increase share count. For instance, you can buy 10 shares of Shopify for $1,500 now and when the stock price surges to $200 in November or February, sell five shares for $1,000. Hold this money and reinvest when Shopify falls to $150 or $160 in March. This can buy you six shares, increasing your count to 11 shares.
You are rolling the money within a TFSA tax-free. You pay no dividend tax or capital gain tax in a TFSA, which makes reinvestment and rebalancing efficient and profitable.
The ideal TFSA balance at age 30
If you have the average TFSA balance of $18,475, you are in sync with most Canadians in your age group. Now it’s time to move above average towards the ideal TFSA balance. Ensure your TFSA balance is more than 50% of your TFSA contribution room. When your tax liability is not significant, consider investing through a TFSA instead of a normal brokerage account or Registered Retirement Savings Plan (RRSP).
RRSPs can only give tax benefits in the present. Suppose you are in the 26% tax bracket and invest $10,000 in an RRSP to reduce the tax bracket to 20.5%, you can consider a one-time return of $2,600 on that investment. However, the RRSP tax withdrawal negates this tax return as you pay tax on the total withdrawal, which includes your investment and capital gain.
In a TFSA, you invest after-tax income. So, whether your $10,000 investment grows to $12,000 or $25,000, the entire capital gain is tax-free. The $2,600 tax you paid before making the $10,000 TFSA investment can give you tax-free returns for multiple years.
At 30, consider maxing out on TFSA contributions first and then look at other accounts.
