One of the center-pieces of the Liberal election platform was a promise to roll back the maximum allowable Tax Free Savings Account (TFSA) contribution limit from $10,000 to some smaller amount. We are writing today on this subject.
When TFSAs first came on the scene six years ago, I confess that we were under-impressed. At the then maximum contribution limit of $5,000 it would take a long time for our clients to accumulate a meaningful amount inside a plan, and an even longer time to save any serious taxes. In 2015, things changed. By almost doubling the annual contribution limit to $10,000 per year, the Federal Government elevated TFSAs into the big leagues. With the $10,000 maximum contribution, consider the following:
•Assuming a 7% return per year after fees (a very achievable return for a high equity allocation account) a couple, each 60 years old today, making the maximum contribution could accumulate over $1,000,000 by the time they reach 80, and save about $200,000 of taxes.
•A 25 year old who makes the maximum contribution every year and gets the same 7% return would have an account of almost $2,000,000 at age 65 and would save about $400,000 in taxes.
•A single gift of $10,000 given to an 18 year old would be worth over $250,000 at age 65.
If we revert to a lower contribution limit, obviously these numbers will not be as good. So what do we do now? Our advice is to top up your TFSA before year-end. The maximum total contribution limit since the start of the plan is $41,000, and the limit for 2015 is still $10,000. We don’t know what will happen with the new government, but at the worst, the contribution limit for 2015 will be rolled back, and your 2015 contribution will be counted for 2016. In other words, no harm to you. At the best, those who contribute in 2015 will be allowed to keep that amount in their plan and be allowed a full contribution in 2016.
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This is an excerpt from Baskin Wealth Management an excellent company here in Toronto, for more information contact Barry Swartz:
95 St. Clair Avenue West, Suite 900
Toronto, ON M4V 1N6
Phone: 416.969.9540 x242 Toll Free: 1.877.227.5468
