Investing

What’s the deal with the TFSA contribution limit?

UPDATE: According to CBC– The TFSA rollback is likely to be announced on Monday, with the vote taking place on Wednesday

The fate of the Tax-Free Saving Account (TFSA) contribution limit was a point of heated contention leading up to the federal election. In an effort to bolster savings for the middle class, the Conservatives raised the limit in 2015 to a non-inflation-indexed $10,000 per annum. The Liberals pledged to reduce the limit back to the inflation indexed $5,500, siting that the increase only benefitted the wealthy. Now with the Liberals in power, we’re likely to see the TFSA’s contribution limit return to $5,500 starting in 2016.

All this back and forth is confusing and left a very important question unanswered: Should I scrape together all my savings to top up my TFSA before the $10K contribution room disappears when the limit is changed?

The answer is: No, you don’t have to. There is no need to rush because the $10K in contribution room that was allowed for in 2015 isn’t going anywhere. As of right now, the contribution limit for 2014 was $5,500, the limit for 2015 is $10K, and the limit for 2016 will likely be $5,500. That means you’re free to continue saving and investing in your TFSA- business as usual- even if that means waiting until next year to make more contributions.

Related: The Beginner’s Guide to the TFSA

There have been some reports of a 2016 $1, 000 limit for those who have contributed $10K, but let’s face it: Trudeau isn’t going meddle with the limits retroactively. It would take quite an amount of effort on the government’s part with little benefit. It would be of little consequence even in the very unlikely event that the extra $4,500 was clawed back. Withdrawals from the TFSA are tax-free, putting that money right back in our collective pockets.

As of 2015, the maximum contribution room in a TFSA is $41,000. In 2016, the maximum contribution room will likely grow to $46,500 instead of $51,000 with the coming changes. It’s as simple as that. Move along. Nothing to see here.

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  • sherry @ save. spend. splurge. November 4, 2015 at 3:21 PM

    Note: Starting in 2016, AFTER they have to pass the bill sometime in March to drop it back down.

    If you contribute $10,000 starting Jan 1 2016, they will not be able to say anything unless they want to claw that back too.

    More than likely it will be 2017 to be $5500 not 2016.