TFSA Contribution Limit

TFSA Information-TFSA Contribution Limit|RRSP Similarities|Which Program Is Best?

What does the TFSA information say regarding yearly contribution limits and how does the TFSA contribution limit work with regards to withdrawals?

The tfsa contribution limit for 2009 is set at $5000 per person and will be indexed to inflation in future years and adjusted annually.

The TFSA formula for indexing will be done in increments of $500.00.

You will be notified by the Federal Finance Department what your contribution limit is set at for the upcoming year.

So let's say you set up a tax free savings account and you contribute the maximum amount of $5000 for that year. Sometime during the course of the year you need to take out $1000 for what ever reason. How does that affect you?

First, the $1000 doesn't get added to your income for that year because it's TAX FREE! Yes! TAX FREE!!

And secondly, you still have the opportunity to put that $1000 back into your TFSA again the following year or any year after that.

It gets carried forward and added to your next years contribution level.

You don't lose your unused contribution level Ever! Just like the way it works with the RRSP Program. The only other similarity is both programs will allow your money to grow tax free.

The BIG difference is when you take money out of your RRSP you DO have to PAY TAXES on the WITHDRAWAL amount. But that's NOT the case with a TFSA according to the TFSA information that was presented by Finance minister Jim Flaherty.

Your spouse or common-law partner can also open up an account and you can contribute to it. He/She doesn't need any income to open and contribute to the plan.

Also, I would like to note, you can't claim any contribution you made to your tax free savings account on your income tax form for the purpose of reducing your taxes. You do not get any tax relief this way. That's what your RRSPs are for.

This TFSA information should be of good help to you.

But, if you can't invest into both programs and would like to know more TFSA information on which program is best suited for you, I strongly encourage you to read Tax-Free Savings Accounts by Gordon Pape. He goes through different strategies and scenarios to better help you make your decision on that matter.

I have supplied a direct link to Amazon for his book below if interested.

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