Investing and Saving
Since its creation in 2009, the Tax-Free Savings Account (TFSA) has been a popular investment vehicle. The reason behind that is simple:
- It lets your money grow tax-free with no taxes when you withdraw, making it both easy to use and understand.
- Any money you withdraw can be put back in anytime after Jan. 1 of the following year without penalty.
So while it doesn’t offer the tax deduction that comes with a RRSP contribution, the long-term advantage it offers is significant.
The amount that you can contribute to your TFSA is limited by your individual TFSA contribution room. Your individual TFSA contribution room is calculated as follows:
Source: ATB Wealth TFSA reference guide.
Aside from a significant deviation in 2015, the annual TFSA dollar limit has been comfortably situated between $5,000-$7,000 per year:
Source: ATB Wealth TFSA reference guide.
The 2025 dollar limit was recently announced to be $7,000—bringing the cumulative total to $102,000 for 2025. So, why have we titled this article the “million-dollar” TFSA? It’s to highlight the opportunity this account provides, when considering existing contribution room, projected future contribution room and investment growth.
If the annual TFSA limit continues to increase over time, at what point might a TFSA reach a million dollars?
Let’s look at an example of someone who is just starting their TFSA with the full cumulative total of $95,000 available, topping it up with their other investments at the end of this year. For this example, we will assume Year 1 is 2025, long-term inflation is 2% per year and investment growth is 5% per year annualized.1 We also assume that the full (projected) TFSA contribution was made on January 1 of each year:
|
Year |
Beginning |
Projected TFSA dollar limit2 |
Jan 1 Balance |
Growth |
Year-end |
|---|---|---|---|---|---|
| 1 | $95,000 | $7,000 | $102,000 | $5,100 | $107,100 |
| 2 | $107,100 | $7,000 | $114,100 | $5,705 | $119,805 |
| 3 | $119,805 | $7,500 | $127,305 | $6,365 | $133,670 |
| 4 | $133,670 | $7,500 | $141,170 | $7,059 | $148,229 |
| 5 | $148,229 | $7,500 | $155,729 | $7,786 | $163,515 |
| 6 | $163,515 | $8,000 | $171,515 | $8,576 | $180,091 |
| 7 | $180,091 | $8,000 | $188,091 | $9,405 | $197,496 |
| 8 | $197,496 | $8,000 | $205,496 | $10,275 | $215,770 |
| 9 | $215,770 | $8,500 | $224,270 | $11,214 | $235,484 |
| 10 | $235,484 | $8,500 | $243,984 | $12,199 | $256,183 |
| 11 | $256,183 | $8,500 | $264,683 | $13,234 | $277,917 |
| 12 | $277,917 | $9,000 | $286,917 | $14,346 | $301,263 |
| 13 | $301,263 | $9,000 | $310,263 | $15,513 | $325,776 |
| 14 | $325,776 | $9,000 | $334,776 | $16,739 | $351,515 |
| 15 | $351,515 | $9,500 | $361,015 | $18,051 | $379,066 |
| 16 | $379,066 | $9,500 | $388,566 | $19,428 | $407,994 |
| 17 | $407,994 | $9,500 | $417,494 | $20,875 | $438,369 |
| 18 | $438,369 | $10,000 | $448,369 | $22,418 | $470,787 |
| 19 | $470,787 | $10,000 | $480,787 | $24,039 | $504,826 |
| 20 | $504,826 | $10,500 | $515,326 | $25,766 | $541,093 |
| 21 | $541,093 | $10,500 | $551,593 | $27,580 | $579,172 |
| 22 | $579,172 | $10,500 | $589,672 | $29,484 | $619,156 |
| 23 | $619,156 | $11,000 | $630,156 | $31,508 | $661,664 |
| 24 | $661,664 | $11,000 | $672,664 | $33,633 | $706,297 |
| 25 | $706,297 | $11,500 | $717,797 | $35,890 | $753,687 |
| 26 | $753,687 | $11,500 | $765,187 | $38,259 | $803,446 |
| 27 | $803,446 | $12,000 | $815,446 | $40,772 | $856,219 |
| 28 | $856,219 | $12,000 | $868,219 | $43,411 | $911,629 |
| 29 | $911,629 | $12,500 | $924,129 | $46,206 | $970,336 |
| 30 | $970,336 | $12,500 | $982,836 | $49,142 | $1,031,978 |
Based on these assumptions, this person would reach half a million dollars in 19 years and $1 million in 30 years. If they have a spouse who is also maximizing their TFSA, they would have $1 million combined in 19 years!
The above example demonstrates the value of making regular investment contributions over time, combined with compounding tax-free returns.
Barring government intervention, TFSAs are on track to become a major element of retirement plans for many Canadians—to the point where it may be their largest asset at various points in retirement. Make sure to consider how your TFSA fits within your retirement plan and avoid having your plan be overly reliant on future contribution room assumptions.
If you’d like to learn more about TFSAs, check out ATB Wealth’s TFSA reference guide or contact an ATB Wealth advisor.
This article may contain forward-looking statements about inflation, future returns and general economic factors which are not guarantees of future performance. Forward-looking statements involve assumptions, risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved.
The TFSA dollar limit is indexed to inflation, rounded to the nearest $500. This means that each year an unrounded indexed amount (the base figure) is calculated based on increases in the Consumer Price Index, but the annual dollar limit only changes when the unrounded amount reaches the next rounding threshold. Projected TFSA dollar limit amounts are based on annual inflation of 2%.
ATB Wealth® (a registered trade name) consists of a range of financial services provided by ATB Financial and certain of its subsidiaries. ATB Investment Management Inc. and ATB Securities Inc. are individually licensed users of ATB Wealth. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
The information contained herein has been compiled or arrived at from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness, and ATB Wealth (this includes all the above legal entities) does not accept any liability or responsibility whatsoever for any loss arising from any use of this document or its contents. This information is subject to change and ATB Wealth does not undertake to provide updated information should a change occur. This document may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions and conclusions contained in it be referred to without the prior consent of the appropriate legal entity using ATB Wealth. This document is being provided for information purposes only and is not intended to replace or serve as a substitute for professional advice, nor as an offer to sell or a solicitation of an offer to buy any investment. Professional legal and tax advice should always be obtained when dealing with legal and taxation issues as each individual’s situation is different.
ATB Wealth experts are ready to listen.
Whether you're a beginner or an experienced investor, we can help.