The Tax-Free Savings Account (TFSA) has an annual maximum of $6,000 in 2021, and a lifetime maximum of as high as $75,500 depending on the year you were born.
How to max out your TFSA every year
The Tax-Free Savings Account is the most powerful investment tool available to Canadians. In fact, if you utilize it correctly, it’s the only retirement account you’ll ever need.
To max out your TFSA every year, you’re going to need to open a TFSA. If you don’t already have one, Wealthsimple is a great place to start! For more info, check out some of our other posts:
- Wealthsimple Review: Hassle-Free Investing on Autopilot
- Questrade Review: Low-Cost DIY Investing
- How to Build a $1 Million Dollar TFSA
- How to Calculate Your TFSA Contribution Limit
Set up a regular TFSA savings plan
At the current annual contribution limit of $6,000, you’ll need to set aside $500 per month. This is not an insignificant sum, so you might find it difficult to do so depending on your budget.
Save $500 per month
This is the simplest “duh” approach to maxing out your TFSA: save $500 per month.
Whether or not this is feasible for you depends on your income and expenses. $500 per month might be realistic, or it might cause you some financial pain to set aside. In any case, if you can find a way to set aside this amount, or $250 each bi-weekly payday, you’ll max out your TFSA every year.
Save $120 per week for 50 weeks
About a year or two ago, I switched almost all my savings strategies to weekly instead of monthly. Overall the amount I was saving each month didn’t change, but it felt SO MUCH EASIER.
One of the other hacks I do is I only save 50 weeks per year instead of 52. Why? So I can give my budget a little more wiggle room during the more expensive time of the year: Christmas. A 50-week savings plan lets you off the hook a week before the holidays! This way you’ll be used to saving $120/week but won’t have to for the last 2 weeks of the year, which will give you an extra $240 to put towards holiday gifts.
A weekly savings strategy might be the most palatable plan to max out your TFSA every year!
Save $300 to $400 per month, then top-up your income tax refund
If saving $500 is impossible, but you might have unexpected cash windfalls at other times of the year, scale back and then make a lump sum deposit when you can. For example, try saving $300 per month (that’s less than $100 per week!) and if you get an income tax refund when you file your taxes, you can use that to top up the account.
How to catch up on unused TFSA contribution room
Many young professionals find themselves in the position of eventually being able to meet the annual TFSA contribution room, but struggle to catch up on unused room from years before.
Pick your favorite savings plan from the suggestions above to ensure you’ll max out your TFSA every year at the annual contribution limit, then focus your efforts on catching up on the unused room. There are a few different ways you can do this!
Snowflake extra dollars to your TFSA
The term “snowflake” in a financial context is typically used to describe extra micro payments towards debt. However, you can apply the exact same strategy to maxing out your Tax-Free Savings Account. Stick to your regular savings plan to meet the annual TFSA contribution room, then use snowflake dollars to catch up on unused room from past years.
A snowflake is a small amount of money, usually less than $25, that you apply towards a financial goal. It can be as little as $5 or $2, or maybe even less! This is an amount so small that you won’t even really miss it, but it can really make a big difference over time, particularly if you’re consistent about it.
Here are some possible snowflakes you can use to max out your TFSA every year:
- round up dollars earned using Tangerine Recipes or KOHO
- cash-back earned from a cash-back credit card or KOHO
- cash-back earned from shopping online with Rakuten
Pick up a side hustle and direct all the income to your Tax-Free Savings Account
If you want to keep things simple, find a part-time job or monetize a hobby and direct everything you earn towards your TFSA. This will let you max out your TFSA every year and catch up on unused past contribution room.
The prospect of adding to your already crammed work week with more work might make you exhausted just thinking about it. But here’s the thing: you’d only have to do it for a short time. Depending on how much catching up you need to do, it might not take you that long at all to plump up your TFSA.
A part-time job
For example, let’s thing you take a part-time gig at your local cafe Thursday evenings and Saturday mornings. You earn $15/hour plus tips working 10 hours per week. Your gross income will be about $700/month, which means you could add as much as $8,000 to your TFSA in just one year. I don’t know about you, but that’s as good of a reason to make lattes as any.
If you genuinely can’t fit a part-time job in, ad-hoc, short-term gigs can still work. Think tutoring, babysitting, dog-walking, shoveling snow, or other part-time help. There are often side jobs for temporary work posted on sites like Kijiji and Craigslist. Anything that will pay your at least $25 without disrupting your life too much is worth doing to max out your TFSA every year.
Have you tried charging scooters?
Lime and Bird scooters have appeared in almost every major North American city. With a small investment in the chargers, you can make charging scooters into a profitable side hustle. The blogger over at Financial Panther actually earned over $1,000 in a single month doing this!
Things can’t get much easier than plugging a scooter into a wall.
Finally, cut your budget and save the difference
I put this tip last because increasing your income should come before trimming expenses. However, you might find dollars hidden somewhere that you can redirect to your savings.
Cut major expenses by 20%+
While clipping coupons never hurts, it won’t have as big of an impact as lowering major bills. If you can find a way to reduce your rent by moving to a smaller apartment or getting a roommate, or selling your car to take public transit, you can bank hundreds of dollars per month instead of just pennies.
Identify the top 3 or 4 biggest spending categories in your budget, and see if you can cut them by 10% or more.
Trim, or completely eliminate, small expenses
Once you’ve tackled large expenses, you can focus on smaller ones. You might still be surprised by how much money you find!
I recently lowered my cellphone bill by $30 per month. Then I managed to knock another $15 off my cable & internet bill. This put over $500 extra in my pockets for 2019!
Final thoughts on how to max out your TFSA every year
Saving is hard when budgets are tight. Chances are you have plenty of financial obligations tugging on your dollars. However, if you can max out your TFSA every year, you absolutely should. It’s worth making other financial sacrifices more.
More likely than not, you’ll have some years where saving is much easier than others. Don’t beat yourself up if you can’t max out your TFSA every year. You can always catch up!