Due to its tax-free nature and excellent flexibility upon withdrawal, I strongly believe that the Tax-Free Savings Account (TFSA) is the best retirement savings tool available to Canadians.
This is perhaps why I’m always so excited when January 1st comes around. Whenever the new TFSA contribution room opens up, I have a personal tradition of contributing money to our TFSAs and getting our money working hard for us right away.
In fact, in the last five years, I have contributed to our TFSAs in the wee hours, just after we celebrated New Year’s. I then purchase individual dividend stocks on January 2nd when the market opens.
Despite the TFSA being such a great tool introduced in 2009, I believe not many Canadians fully grasp what a powerful tool it is. According to the CRA’s TFSA 2024 statistics, of the 17.8 million TFSA holders in Canada, only 1.54 million have maximized their contributions, or 8.68%!
The Canadian government effectively provided a way to invest money, watch it grow, and then withdraw every single dollar, including all the gains, completely tax-free! When you withdraw money from the TFSA, you can carry forward that withdrawal amount as contribution room into the next calendar year.
I was probably one of the few Canadians who have been maxing out my TFSA every single year. When Mrs. T became a Canadian permanent resident (then later a Canadian citizen), we maxed out her TFSA as well and have done so every year since.
Eighteen years later, I thought it would be worthwhile to demonstrate what consistent habit has produced – our TFSA numbers, lessons we’ve learned, and a few mistakes we made along the way that caused us some money and a lot of stress.
I hope this article will help emphasize the importance of prioritizing your TFSA. If you’re just starting out and wondering if it’s even worth it to contribute money to your TFSA, I hope to give you some clarity.
A quick recap on TFSA rules
The TFSA is open to any Canadian resident and citizen 18 or older. Every calendar year, the federal government sets an annual TFSA contribution limit. If you don’t max out your contribution room for the year, the amount can be carried forward.
Because you are contributing to the TFSA with after tax dollars, the money you put in grows completely tax-free. You can withdraw money from your TFSA at any time without paying any taxes. To sweeten the deal, any TFSA withdrawals are added back to your TFSA contribution room the following year.
The TFSA annual limit started at $5,000 in 2009. Since the contribution room is inflation-adjusted, the annual limit has been increased to $7,000 in 2026 (note, in 2015, the Harper government temporarily doubled the TFSA contribution limit to $10,000).
Here’s the complete year-by-year table:
| Year | Annual Limit | Cumulative Room (since 2009) |
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
| 2020 | $6,000 | $69,500 |
| 2021 | $6,000 | $75,500 |
| 2022 | $6,000 | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
| 2026 | $7,000 | $109,000 |
If you were 18 or older in 2009 and have never contributed to a TFSA, you would have $109,000 of contribution room available right now. This is a significant amount of tax-free shelter waiting to be used and taken advantage of. At a 4% dividend yield, $109k would produce $4,360 in tax-free dividend income every year.
For a couple where both partners are eligible to contribute to a TFSA from 2009, they would have a combined contribution room of $218,000. At a 4% dividend yield, that amount would produce $8,720 in tax-free dividend income every year.
My own TFSA journey – 2029 to today
When the TFSA was launched in 2009, I understood what it was and maxed it out immediately. However, rather than using the money to buy index ETFs or individual stocks, I opened my TFSA account with ING Direct (now Tangerine) and put the money in a high savings account.
Looking back, that was a big mistake I made. The stock market bottomed out around March 2009 after the 2008 financial crisis. If I had used the $5,000 TFSA money to purchase a dividend paying stock like Royal Bank and left it compound over time, I would have done tremendously well (RY was around $30 back then).
As I started learning more about personal finance and investing, I realized putting TFSA money in a high savings account was silly. So I transferred the TFSA money from ING Direct to TD Direct Investing and started investing in individual dividend stocks. The first stock I purchased in my TFSA was Manulife and it happened to pay dividends.
I picked Manulife because my work’s extended health was with Manulife. When I looked at MFC’s stock price, it had gone from below $10 to the mid $20s. Knowing the stock price was in the $40’s before the financial crisis and that MFC maintained the same dividend amount, I thought this was a great deal. Little did I know that MFC would cut its dividend payout by 50% in August, shortly after I purchased it, and the stock hovered below $20 for a very long time.
After Manulife, I was very much focused on dividend yield (a common newbie dividend growth investor mistake), so I purchased many Canadian REITs and income trusts inside my TFSA. My saving grace was that I also purchased Canadian banks like TD, CIBC, and National Bank, which have done very well over the years.
As you could probably guess, my chasing higher yield strategy has evolved over time.
Mrs.T’s TFSA journey and her over-contribution fiasco
When we met, Mrs. T was in Canada as an exchange student. I was very lucky that she decided to come back to Canada and said yes when I asked her to marry me. When she became a permanent resident in 2011, we opened her TFSA with Questrade in 2012 and started contributing.
Since she was over 18 in 2009, I thought she’d have $20,000 in TFSA contribution room. So throughout 2012, she contributed a total of $20,000 in her TFSA and started investing in individual dividend stocks.
But our understanding was completely incorrect!
Under the CRA rules, TFSA contribution room only accumulates for Canadian residents. So, despite the TFSA existing in 2009, Mrs. T’s room didn’t start until 2011.
She had actually over-contributed to her TFSA by $10,000!
To make the mistake even worse, the CRA didn’t send us the TFSA over-contribution letter until 2015, three years later, and the mistake had compounded itself (since we maxed out Mrs. T’s TFSA every year, so the $10k penalty kept compounding). As a result, the CRA deemed that we had to pay three years’ worth of contribution penalties. At 1% tax penalty per month, we were assessed a $3,600 penalty!
Ouch!
We withdrew the over-contribution amount immediately, sent a cheque for $3,600 along with a letter to the CRA explaining our honest mistake, and asked for forgiveness.
Fortunately for us, the CRA sided with us and returned the $3,600 to us with a small interest.
This is why it’s very important to know the TFSA rules and keep track of your contributions (especially when you have multiple TFSA accounts). Don’t just check your available TFSA room on CRA My Account because the number could be outdated.
Like me, we originally held many Canadian REITs and income trusts in Mrs. T’s TFSA. Over time, we got rid of all the income trusts and many of the REITs and put more emphasis on dividend growth.
More details on what we hold in our TFSAs
As mentioned, our TFSA investment strategy has evolved. We no longer hold Canadian income trusts and now only hold a few REITs. We have kept our TFSAs strictly Canadian rather than investing in US dividend paying stocks or US growth stocks. Some may argue that you should invest in high growth US dividend stocks like Amazon, Tesla, and Nvidia in TFSAs, but we choose not to do that to avoid currency exchange.
Anyway, at the time of writing, these are the individual dividend stocks that we hold in our TFSAs:
- Alimentation Couche-Tard (ATD.TO)
- Brookfield Asset Management (BAM.TO)
- BCE (BCE.TO)
- Brookfield Renewable Corp (BEPC.TO)
- Bank of Montreal (BMO.TO)
- Bank of Nova Scotia (BNS.TO)
- CIBC (CM.TO)
- Canadian National Railway (CNR.TO)
- Capital Power Corp (CPX.TO)
- Emera (EMA.TO)
- Fortis (FTS.TO)
- Granite REIT (GRT.UN)
- Manulife Financial (MFC.TO)
- National Bank (NA.TO)
- Power Corp (POW.TO)
- SmartCentres REIT (SRU.UN)
- Telus (T.TO)
- TD (TD.TO)
- TC Energy Corp (TRP.TO)
Canadian dividend stocks in the TFSA are great because dividend income is completely tax-free. With RRSP and RRIF, withdrawals are taxed at your marginal tax rate; with non-registered accounts, eligible dividends are treated favourably, but you still have to pay some level of taxes (unless you’re in the lowest tax bracket).
It makes sense to invest in Canadian REITs inside a TFSA to avoid the complicated tax calculation, especially when you reinvest your dividends.
As you can see, we currently do not hold index ETFs like XAW or QQQM inside our TFSAs, only in our non-taxable accounts and RRSPs.
The power of compounding – What consistent contributions actually produce
What happens when you max out your TFSA every year since 2009? What would your TFSA look like with different average annual return rates?
If you maxed out your TFSA every year since 2009, you would have contributed $109,000 in total. Below is what it looks like if you had 7, 8, and 10% average annual return rates.
| Average annual return | Estimated TFSA value in 2026 (single) |
| 7% | ~$186,000 |
| 8% | ~$219,000 |
| 10% | ~$265,000 |
If both you and your spouse/partner maxed out your TFSAs every year since 2009, the estimated TFSA value in 2026 would be double what I indicated above. In other words, if both you and your spouse/partner maxed out and had a 10% average annual return rate, you’d be sitting at over half a million dollars in tax-free assets!
Needless to say, this is extremely powerful and gives you a lot of flexibility in terms of retirement planning.
What our actual numbers look like
Some of you might be curious what our actual TFSA numbers are like.
When I started this blog, I promised myself one thing – we would not share our actual numbers.
I have kept true to this rule and I don’t plan to break it!
With that in mind, this is what I can tell you:
- I have contributed $109,000 in total to my TFSA
- Mrs. T has contributed $99,000 in total to her TFSA
- At the time of writing, my TFSA is over $300k and Mrs. T’s TFSA is just over $200k, so both of our TFSAs have returned quite well over the years.
So both of our TFSA have an average annual return north of 10%. Needless to say, we are extremely happy with this performance and hopefully we can continue to compound at such a rate moving forward.
Interestingly, although there is only a $10k difference in our TFSA contributions, the difference between our TFSAs is almost $100k. That’s a pretty significant difference if you think about it.
How did this happen?
A few factors I could think of are:
- My contributions from 2009, 2010, and 2011 had three extra years to compound compared to Mrs. T (she didn’t make her first TFSA contribution until 2012). The stock market was recovering in late 2009 and having money invested throughout the initial bull run was very beneficial for my TFSA
- I started holding stocks like TD and Pure Industrial REIT in early 2012, which have done well (Pure Industrial REIT was acquired and I got a nice payout as a result).
- Mrs. T’s TFSA held more high yield dividend stocks a little bit longer than mine, so her TFSA may have underperformed compared to mine in the early 2010s.
Either way, it’s quite stunning that a $10k difference makes that much of a difference after more than a decade of compounding.
What if you’re just starting
What if you’re just starting with TFSA contributions? Or you were 18 or older in 2009 but haven’t paid much attention to TFSA? Is it too late to start now?
It’s never too late!
It’s important to remember that all unused TFSA contribution room is carried forward, so if you have never contributed and you were 18 or older in 2009, you have $109,00 of TFSA contribution room available right now. Even if the TFSA contribution room started counting for you later, you would have some TFSA room accumulated. For someone who just turned 18, although your contribution room is low, it makes sense to start contributing now and let time help you.
The key thing to remember is that compounding is very powerful. The earlier you contribute money to your TFSA and have it working for you, the longer the money can compound and grow for you.
As the old saying goes, ” the best time to start investing was yesterday, the second best time is today.
Lessons from 18 years of TFSA investing
After investing in a TFSA since 2009, or 18 years (wow, that’s a long time!), here are the lessons I have learned:
Contribute on January 1st, not December 31 (and make purchase on Jan 2nd)
The key benefit of the TFSA is the tax-free growth. So every day your money sits inside the TFSA means an extra day of compounding. Therefore, contributing on January 2nd and having your money start working right away at the beginning of the year, rather than contributing on December 31st, makes a lot of sense.
If you can, save for next year’s TFSA contribution this year so you can contribute the max allowable amount on January 1st. This is what we have been doing for many years. Or at the other end of the age spectrum, you might consider taking your RRIF MMW (Mandatory Minimum Withdrawal) in December and then if you don’t need the money for living expenses, immediately contribute it into your TFSA in January.
Invest it, don’t save it
I personally think the Tax Free Savings Account is a terrible name. It should be called something like the Tax Free Retirement Plan instead. Because of its tax-free nature, having your TFSA money sitting in a high savings account earning less than 3% interest is not a smart way to grow your money. Sure, it’s better than hiding money under your mattress, but you’re better off investing the TFSA money in a diversified portfolio earning more than 3%.
If time is on your side, investing in 100% equities makes a lot of sense. Whether you invest in index ETFs, individual dividend stocks, or both is a separate discussion and a personal decision.
You could also argue that since all the growth inside the TFSA is tax-free, you should focus on high growth stocks. That’s certainly a strategy one can deploy if you are OK with the higher risk associated with these high growth stocks.
Don’t withdraw unless you have to
Although you can contribute back the following calendar year on whatever amount you withdrew, it is best not to withdraw unless you have to. Why? Because you lose the compounding power.
Check your contribution room, do not over contribute
We made a costly mistake of over-contributing to Mrs. T’s TFSA. We were extremely fortunate that the CRA forgave our honest mistake and returned our $3,600 penalty. According to a few readers, they weren’t as fortunate, even though their overcontributions were honest mistakes too. It appears that the CRA hasn’t been as forgiving when it comes to TFSA overcontribution in recent years.
Therefore, make sure you double check your available contribution room before you contribute. This is especially important when you have multiple TFSAs and you haven’t maxed out your TFSA contribution room every year.
As mentioned, the CRA My Account may not show the latest, so it’s a good idea to keep track of your TFSA contributions via a spreadsheet yourself.
Take advantage of the two-player mode
If you have a spouse or partner, contributing money to both TFSAs and maxing out both is an excellent idea. If both you and your spouse/partner can contribute to a TFSA starting in 2009, you would have a combined $218,000 tax free shelter contribution room available. It’s a shame not to use it.
If one of you has a higher income, the higher income spouse can gift money to the lower income spouse and have the lower income spouse contribute to his/her TFSA. This is totally allowed.
Summary – How we’ve maximized our TFSA every year
The TFSA is, without question, the best financial tool available to Canadian investors. I am a true believer in this statement.
Mrs. T and I started contributing money to our TFSAs as soon as we were eligible. We maxed out our TFSAs every single year, no exception. In some years, it was hard to save all that money. But we understood how powerful TFSA is when it comes to tax free growth and withdrawals. So we made saving money for TFSA contributions a top priority every single year.
Many sacrifices were made to make sure we could do that.
And I’m extremely glad we did that. After 18 years (or 15 years for Mrs. T), I can confidently say that trusting the math has rewarded us.
For anyone who hasn’t started or who has been contributing but not maxing out, I hope this post demonstrates how powerful the TFSA is and gives you a clear picture of what consistent TFSA investing can actually produce over time.
The math isn’t just theoretical, it works in real life! It’d be a shame not to utilize this available and powerful tool.
What does your TFSA journey look like? Have you been maxing it since 2009? Or did you have a later start like Mrs. T? I’d love to hear your story in the comments below.
