TFSA contribution limit for 2025: What you need to know
Some things get better with age. You can put the Tax-Free Savings Account (TFSA) on that list. That’s because as of January 1, every Canadian at least 18 years of age with a valid social insurance number just gained $7,000 worth of contribution room in their TFSA.
If you’ve never contributed to a TFSA but qualified to open one when it was introduced in 2009, then your lifetime contribution limit is now $102,000.
TFSAs continue to grow in popularity. Today, some 18 million Canadians have opened at least one of these accounts, up from 9.5 million a decade ago. Still, despite the advantages of a TFSA, which provides a flexible way to invest without paying taxes on gains or withdrawals, this type of account remains underutilized. The most recent data from Statistics Canada found that roughly eight million of those TFSA holders didn’t contribute a cent to their account in 2022.
To make the most of your TFSA, here are a few important details to keep in mind.
1. Understanding TFSA contribution room
Your contribution room – or the maximum amount you can put into your TFSA each year – is set by the federal government annually. While that contribution room rises by $7,000 this year, that figure will adjust with inflation, increasing to the nearest $500 increment. Your TFSA contribution room begins to accumulate from the moment you’re eligible to open an account, and any unused room is carried forward indefinitely. If you’re new to TFSAs, or investing in general, be sure to check out Investing for beginners.
2. Maximizing your TFSA
Despite the word “savings” in its name, a TFSA is an investment account that can hold a wide range of assets, including stocks, bonds and exchange-traded funds (ETFs). To get the most out of a TFSA, you may want to consider employing some of the following strategies:
Start early and maximize your contributions. Contributing to a TFSA as soon as you’re eligible and investing as much as you can every year will help you maximize the power of compound growth – where you earn gains on your gains. Setting up preauthorized transactions ensures you’ll never forget to contribute.
Invest in ETFs. An ETF makes a great addition to a TFSA, because this type of fund contains a range of investments that add instant diversification to your portfolio without requiring you to research and buy individual investments. Spreading your dollars across a greater number of assets can help you manage the risk of allowing one underperforming investment to hurt your overall return.
Invest in growth stocks. Growth stocks are another fine addition to a TFSA, because you don’t have to worry about paying capital gains taxes, no matter how long you hold them. If these stocks perform well and you need the money, you can withdraw the gains tax-free and use them to fund either your short- or long-term goals.
Reinvest any dividends. Instead of withdrawing the income generated inside your TFSA, reinvest the dividends to help your portfolio grow more quickly.
Consider a financial advisor. A financial advisor can help you craft a comprehensive savings and investment strategy that leverages the benefits of a TFSA, minimizes your taxes and helps you meet your financial goals.
3. Avoiding overcontribution penalties
Ideally, you’ll want to maximize your TFSA contributions, but be careful not to overcontribute to the account, as that can trigger penalties of 1% of the overcontribution every month until the excess funds are withdrawn.
It seems simple enough, but sometimes it can be easy to lose track of your available room when you start making withdrawals from your TFSA. While you can reclaim the contribution room after a withdrawal, you have to wait until the start of the next calendar year to do so. If you’re unsure how much room you have left, be sure to check out the Canada Revenue Agency’s My Account page for more details.
