If you're a Canadian investor, you've probably come across Tax-Free Savings Account (TFSA) – a robust instrument designed to enhance your financial standing without the burden of tax obligations on your returns. However, did you ponder over how substantial your savings could be inside your TFSA had you consistently contributed since its inception? This outcome may astound you, particularly with strategic investments involved. We'll delve into the highest permissible contribution limit along with the possible expansion within a TFSA.
What amount can you put into your Tax-Free Savings Account?
For Canadians who became eligible to participate in a Tax-Free Savings Account (TFSA) starting from 2009 (that includes individuals who were at least 18 years old that year) and haven’t made any withdrawals yet, the total contribution limit by 2025 would be $102,000. Below is an outline of the yearly contribution caps: - [Year] - [Contribution Limit] - ... - 2025 - $102,000
In 2024, the yearly maximum contribution limit stands at $7,000, with this figure being adjusted annually according to changes in inflation and then rounded off to the closest multiple of $500. Each January 1st, your available contribution space resets, enabling you to deposit the entire sum for that particular year anew. However, what truly sets apart the Tax-Free Savings Account (TFSA) is its remarkable feature: your investments grow tax-free This encompasses interest, dividends, and capital gains, which makes it an excellent instrument for accumulating wealth gradually over the long term.
The power of long-term investing in your TFSA
A great strategy to get the most out of your TFSA is to focus on investments aimed at long-term expansion. The greater time your investments have to grow, the more your TFSA can compound . Let’s imagine you’ve been contributing the maximum allowable amount since 2009, and your investments delivered the average 10-year Canadian stock market (using iShares S&P/TSX 60 Index ETF as a proxy) return of 8.8% per year, your TFSA wealth would have doubled. By this year, your total contributions of $102,000 would have grown to around $209,996 — all within the tax-free umbrella of your TFSA. This shows the power of compound growth over time. But what if you have picked winning stocks ?
High-growth stocks to boost your TFSA wealth
While investing in a solid, broad-market fund like the XIU is a good strategy, some high-growth stocks have the potential to skyrocket within a TFSA. Let’s look at two prime examples of Canadian stocks that could turn your TFSA into a wealth-building machine.
Constellation Software ( TSX:CSU ) is one of the best examples of a Canadian growth stock. Over the last decade, the top tech stock has delivered annualized returns of over 28%, turning an initial investment of $1,000 into approximately $12,338. The company specializes in acquiring and managing vertical market software businesses, providing stable, recurring revenue streams. Thanks to its excellent capital allocation, disciplined acquisition strategy, and niche market focus, Constellation has achieved remarkable growth. Investors looking for reliable, long-term growth should find Constellation Software a solid pick for their long-term TFSA portfolio.
Another stock to consider is goeasy ( TSX:GSY ), a leader in Canadian non-prime lending. Despite a 27% pullback triggered by macroeconomic concerns like the U.S.-Canada-Mexico trade war, goeasy has delivered impressive returns — nearly 25% annualized over the past decade. The company’s focus on underserved customers has allowed it to build a loyal base and generate consistent revenue and profit growth. With a discounted valuation today and strong prospects for future growth, goeasy is an attractive idea for investors looking to add high-growth stocks to their TFSA.
The Foolish investor takeaway: Your TFSA has limitless potential
While the contribution limits for a TFSA are capped, the growth potential inside the account is limitless — provided you make smart investment choices. By contributing the maximum allowed each year and strategically investing in high-growth stocks, your TFSA can be a powerful tool for building wealth over the long term. Whether you choose a diversified ETF or individual growth stocks like Constellation Software and goeasy, the key is to stay focused on long-term returns and let the power of compound growth work in your favour.
The post Here’s the Maximum Amount Canadians Could Have in a TFSA appeared first on The Motley Fool Canada .
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Fool contributor Kay Ng holds stakes in Goeasy. The Motley Fool endorses shares of Constellation Software. The Motley Fool maintains this position: disclosure policy .