2024 TFSA Contribution Limit Misunderstandings

Why Do Canadians Misunderstand The TFSA contribution limits and the account itself?

The Tax-Free savings account in Canada is one of the BEST accounts for building wealth, but it’s also one of the more misunderstood accounts.  Let’s explain why you may not be using your TFSA to its full advantage and what you should be doing instead. 

First of all, it’s not Canadians’ fault that many are using the TFSA in a way that is less than ideal. The primary issue comes from its name. It is called a Savings Account, but the way to get the most value is by using it as an investment account. 

TLDR: the 2024 TFSA Contribution limit is $7000, but you want to read on to make sure you don’t make these common mistakes.

Let’s think about the main benefit this account provides. It is a Tax Free account, which means your money grows tax-free, and is not taxed on withdrawal. You are using your after-tax dollars to contribute, so there are no deductions in taxes like you could get when you contribute to your RRSP. To understand why this is so important, let’s take a step back. 

Tax Free Savings Account vs High Interest Savings Account

A HISA is a High-Interest Savings account that is taxable. Some people are afraid to use a HISA account for savings because they are so tax-averse that any thought of incurring taxation gets their anxiety on high alert. We live in Canada; we pay taxes; it’s a fact of life.

Trying to avoid taxes by intentionally choosing to earn less interest is like trying to avoid getting a raise because it may bump your tax bracket.  Earning more money is always worth it. Don’t shortchange yourself; you will still come out ahead. 

A TFSA savings account earning you .85% Would net you $168 in interest in one year. While the HISA Account would make you $800 in interest. You can see how much of an advantage the taxable HISA account gives you in earning power over the low-interest TFSA savings account.