TFSA Rules And Contribution Limits For 2020 Tax-Free Savings Account

The tax free savings account (TFSA) has been available to Canadians for a while now.  One of the benefits of being a year older is that you now have more contribution room available to invest in your TFSA.

If you turn 18 this year, your contribution limit is $10,000.  If you turned 18 prior to this year, your TFSA contribution room will be $5,000 per year starting from the year you turned 18 or 2009, whichever is later up to to 2012.  2013 and 2014 have $5,500 contribution limits and 2015 is $10,000.  2016, 2017, 2018 the limit was $5,500 and the limit is going up to $6,000 for 2019.

In other words – here are the annual contribution limits per year – keep in mind you have to be 18 to accrue any TFSA contribution room.

2009 – $5,000

2010 – $5,000

2011 – $5,000

2012 – $5,000

2013 – $5,500

2014 – $5,500

2015 – $10,000

2016 – $5,500

2017 – $5,500

2018 – $5,500

2019 – $6,000

2020 – $6,000

My wife and I have made full use of our TFSA room because we have a $20,000 emergency fund which fits our TFSA accounts like a glove.  There are many different potential uses for TFSA accounts, but keeping an emergency fund is a good one, since all interest earned in the account is tax free.  We keep the emergency fund TFSA at ING Direct – see how to get a $25 bonus here from ING.

Use the ING referral code 33089336S1 and get a $25 bonus in your account!

The basic rules and limits haven’t changed since last year.  Make sure you understand how the withdrawal rules work (withdrawal amounts get added to your contribution room starting on Jan 1 of the NEXT year).

Basic TFSA rules for 2015

  • Contribution room increases by $5,000 per year starting in 2009 or the year you turned 18, whichever is later until 2012
  • Contribution room for 2013 and 2014 is $5,500 for the year..
  • Contribution room for 2015 is $10,000.
  • Contribution room for 2016 is $5,500.
  • Unused contribution room carries over indefinitely.
  • Any contributions made to the TFSA will result in a similar reduction to your available contribution room.
  • Any withdrawals from your TFSA will result in a similar addition to your available contribution room, but only effective January 1st of the following year.  See my “December strategy” for details on this.
  • All income earned in the TFSA is not taxable.
  • All withdrawals are not taxable.
  • There is no “contribution receipt” issued for TFSA accounts.  Any money contributed to a TFSA has already been taxed (at your personal income level) and doesn’t get taxed again.
  • You can have multiple TFSA accounts at different financial institutions.  However it is up to YOU to keep track of your contributions.  The government knows if you go over the limit and will charge an over-contribution fee.  Don’t expect any kind of friendly phone call if you go over your limit – the government will just start charging the fee and it will be payable on your next tax return.

Type of investments allowed in TFSA accounts

It’s a common perception that only bank accounts and GICs are allowed in TFSAs.  This is not true – whatever investments are allowed in an RRSP account are also allowed in TFSAs.   Stocks, bonds, mutual funds, index funds, ETFs (Exchange Traded Funds), GICs, high interest savings account are all eligible for TFSAs.

Where to set up a TFSA Account

Plenty of TFSA options:

  1. Discount brokerage – This is the place to buy stocks, ETFs, bonds, mutual funds, index funds.  See my Canadian online discount brokerage comparison for a complete look at options and fees.  Questrade brokerage is my personal favourite.
  2. Banks – This is the most convenient option for high interest savings accounts and GICs.
  3. Financial advisor – If you have an advisor of some sort, they should be able to set up an account for you.

RBC Direct Discount Brokerage Review

I recently moved my investment accounts from Questrade to RBC Direct in order to take advantage of the RBC 1% rebate deal so I thought it would only be fitting to do a review of their services.

Who are they?

RBC Direct is the discount brokerage arm of the Royal Bank of Canada which is the biggest Canadian bank.

Good things about RBC Direct

I like the trading platform – it looks nice, easy to use and is well designed.  There is also access to analysts reports etc.  It does the job.

If you would like to compare all the different Canadian discount brokerages, check out the Canadian discount brokerage comparison.

Bad things about RBC Direct

Everything else.  🙂

Fees – ridiculous fees in my opinion.  $10/trade is not bad for a passive investor but why anyone would pay $29 a trade is beyond my comprehension.  I’ve outlined the fees at the bottom of the post.

No electronic money movement
unless you have a RBC bank account.  This is the stupidest thing about RBC – yes, I understand they want to ‘bundle’ all their services but forcing investors to open up new accounts to use their discount brokerage when most of the other discount brokerages offer excellent electronic money movement options is just bad business.  Get out of the stone age RBC!

In order for me to put money into the account, I have to write a cheque and mail it to them.  If I want to remove any money – I have to pay $10 for a cheque to be written.  My plan is to keep all cash in the account until next year when I can move back to Questrade and then withdraw it electronically.  The most annoying part of this is that when I looked into the 1% deal – a customer service rep told me on the phone that I could do electronic money movement which turned out to be false.  Speaking of customer service….

Bad Customer service

I won’t bore you will the multitude of issues I’ve encountered with RBC but suffice to say that I think their computer system was probably build sometime in the 20’s which makes it very hard for the customer service reps to do their job.

Most of the reps are pretty good although one time I called without an account number and the rep told me it was “very hard to look up an account without the account number”.  I challenged him on it and he somehow was able to find the account immediately just using my name.  Kudos jackass…kudos.


I can’t really recommend RBC Direct since I really don’t like them and can’t wait to collect my 1% and go back to Questrade.  However, if you already do your banking with RBC and have a $100,000 in assets then they are not a bad choice.  If you don’t meet those criteria then look elsewhere.

Trading Fees

  • $28.95 per trade unless you have $100,000 in household assets at RBC Direct or complete more than 30 trades per quarter.
  • $9.95 if you have $100,000 in household assets at RBC Direct.
  • $9.95 if you make between 30 and 149 trades per quarter.
  • $6.95 for those super-active traders who do at least 150 trades per quarter.

Annual account fees

  • No fees if total client assets are $15,000 or more.
  • If assets are less than $15,000, a $25 quarterly fee will be charged regardless of the number of accounts.  Can be avoided by making three or more trades in all accounts

Other discount brokerages reviews

Questrade discount brokerage review.

Personal Finance

Benefits of Tax Free Savings Account (TFSA)

The Canadian government announced the creation a new savings account type (Tax-Free Savings Account) which allows Canadians to contribute after-tax money without any taxes on the earnings within the account (interest, dividends, capital gains) and there will be no withdrawal taxes whatsoever. For any Americans reading, this account will be very similar to your Roth IRA account except there aren’t any restrictions on withdrawals in the TFSA.

While this announcement has generated a lot of excitement in the Canadian blogosphere and for good reason, since it will be very useful financial planning tool, my opinion is that the benefits of this new savings account will be very limited for the average Canadian.

Here is an explanation of the new tax free savings accounts for Canadians.

First of all let’s look at some benefits and uses for this new account.

Saving for large purchases during your working years

In my mind, this is one of the greatest benefits of this new account. If you are saving up for a car, a house down payment, vacations or anything else, this account is the way to do it. Previously, if you wanted to save large amounts of cash then you had to pay your marginal rate on any interest earned which for most people is probably at least 30%. You could mitigate this problem with Canadian dividend stocks which are more lightly taxed, but they are still taxable and then you expose yourself to market risk since the money might not all be there when you need it.

Emergency fund

I wrote recently about how I think having a cash emergency fund is not a good idea for someone with a mortgage, a HELOC and a high marginal tax rate. With this new tax sheltered account, my main argument about paying high taxes on the interest is now a moot point so the remaining issue is the interest rate you can get on the savings account vs. the interest you are paying on the mortgage. Unless you have a huge emergency fund, this small interest rate difference might not be large enough to sway the argument one way or the other.

Retirement planning

A lot of Canadians don’t really understand the benefits of an RRSP account (American translation = 401k) which is unfortunate since it is the best tax planning and retirement tool available to Canadians by far.
TFSA are not as good as RRSPs for retirement planning because RRSPs allow you to defer all the tax payable on the contribution and to pay LESS tax upon withdrawal.

One of the common misconceptions of RRSPs is that you have to be in a lower marginal tax bracket in retirement than when you made the contribution. This is not the case because when you make a contribution, the tax deferral is the marginal tax on the entire contribution ie if you make $100k and contribute $10k of pre-tax income and your marginal rate is 43% then you are deferring $4300 of taxes.

When you withdraw this money in retirement then you are paying the AVERAGE tax rate on the withdrawal – not the marginal rate (assuming no other income). So if someone withdraws from their RRSP in retirement and is at the same marginal tax rate as they were when they made the contribution, they will still save a lot of tax. In reality they will probably be in a lower marginal tax bracket which means they save even more tax.
With the TFSA, you don’t get this benefit since you pay your marginal tax as soon as it is earned.

Non-registered investing

For investors who have money in non-registered accounts either because they have already maxed out their RRSPs or other reasons, this new account is a huge benefit since they can reduce the tax drag on earnings on their investments. Previously dividends and capital gains (if they occurred) had to be paid which affects the long term returns of those investments.

Why the general public won’t benefit

Saving for purchases – I don’t believe very many Canadians save for large purchases. You don’t need 20% to buy a house and things like cars and vacations are so easily bought on credit that most people won’t bother to save. Even if we are savers, most of us don’t appreciate the effects of tax drag so paying taxes on the interests may not bother everyone (like it bothers me!).

Emergency fund – Similar to my previous point, how many Canadians even have an emergency fund? While our high taxes made an emergency fund fairly inefficient, with the TFSA this is not an issue anymore. I doubt it will make any difference for the average Canadian since I don’t think they will consider having an emergency fund.

Retirement Savings – The reality is that there are a lot of Canadians who don’t save enough (or at all) for their retirement so introducing a new method (which isn’t even designed for retirement savings) isn’t going to help them. Since I believe that a lack of understanding of how RRSPs work might discourage some Canadians from using them, I am hopeful maybe some of those people will use a TFSA instead since it’s a lot better than nothing but I doubt that many of them will.

Who will benefit?

Simple – savers. People who save, people who complain because they don’t have enough RRSP room, people who invest outside their RRSP, people who are doing a Derek Foster plan (retire on dividends), geeky personal finance bloggers (I guess I could have omitted the word geeky) 🙂

More information on the TFSA

Tax Free Savings Account (TFSA) Basic information for Canadians

TFSA contribution limits

Comparison between Canadian TFSA and American Roth IRA

Tax Free Savings Account refresher for Canada

ING offers TFSA refresher for Canadians

Is the RRSP still worthwhile because of TFSA accounts?

Using the Tax Free Savings Account (TFSA) for Canadians as an emergency fund

Personal Finance

Tax Free Savings Account (TFSA)

The Canadian government recently announced a new type of tax-free savings account (TFSA) available to Canadians which is similar to the Roth IRA account available to Americans. Here are some of the details:

What is the TFSA?

A type of account where you make contributions but don’t get any income tax refund. While the money is in the account there are no taxes applied to any kind of earnings such as interest, dividends, capitals gains. Any withdrawals from the account are not taxable and won’t count against any government programs ie GIS, OAS.

How does the TFSA work?

  • You can contribute $5000 per year to this account for the years 2009 to 2012 and $5,500 for year 2013 and beyond.
  • The contribution room is carried forward.
  • No taxes on any earnings.
  • No taxes on any withdrawals.
  • When you withdraw money from the account, the contribution room available gets increased by the amount of the withdrawal – please note that this new contribution room is not available until the following calendar year.

When can I open up a TFSA account?

January 2, 2009 was the first day you could deposit funds into a TFSA.  Most institutions allowed customers to set up accounts prior to this date however.

Why do I want to open a TFSA account?

Any money that you might be saving for emergencies or upcoming large purchases will have a constant tax drag in an non-registered account. With the TFSA, this tax drag no longer exists so you will end up with more money for your purchase or emergency.  Here are some more benefits of the Canadian tax free savings account.

More information on the TFSA

Tax Free Savings Account (TFSA) Basic information for Canadians

TFSA contribution limits

TFSA Over-Contribution Penalty Fix

Tax Free Savings Account refresher for Canada

ING offers TFSA refresher for Canadians

Using the Tax Free Savings Account (TFSA) for Canadians as an emergency fund