While the CRA hasn’t made the official announcement yet, the general consensus is that the TFSA contribution room for the year 2022 will be $6,000. That will bring the total contribution room for people who haven’t yet made a single TFSA contribution yet (and were above 18 at the time of TFSA’s inception) to $81,500.
That’s a sizeable enough amount and about four years away from breaking the six-digit barrier. This routine-yet-still-significant change is something you might consider planning for beforehand.
New TFSA contribution room The CRA announces the new contribution limit for the TFSA for the new year when we are much closer to it than we are now. But it’s highly likely to be $6,000. Since its inception, the contribution limit had grown steadily, apart from 2015, when the CRA allowed Canadians to put $10,000 in their TFSAs. And if the TFSA contribution limits were to be affected by the pandemic, the ideal year for it would have been 2021, not 2022.
The CRA claims that the annual dollar limit for new contribution room in the TFSA is indexed for inflation. And since the inflation is at an 18-year high, it may reflect in the TFSA contribution room for 2022, but until a definitive announcement is made, we have to assume that the limit will follow the pattern and will be $6,000. It may seem less, especially compared to the more generous RRSP contribution limit, but it’s more than enough in the right stocks.
The right stock for your TFSA Toronto-Dominion (TSX:TD)(NYSE:TSX:TD) is a good choice for your TFSA, especially as a long-term holding. It offers a decent combination of yield and capital-appreciation potential, but the combo would yield better results if you buy it at the right time, which might not be now. Thanks to the post-pandemic growth spurt, the bank has grown too fast in a relatively small time without raising any valuation red flags.
And even though the bank is currently fairly valued, with its financials supporting its current market value, the stock is most likely overheated and is due for a correction. A sizeable fall will not just make it more attractive from a valuation perspective but will also push the yield higher. The current 3.4% yield is not bad, but it can easily go up to 4%, and buying low can also go a long way towards making the 10-year CAGR of 14% work better for you.
Foolish takeaway If you find the TFSA contribution limits too low to meet your long-term growth and retirement goals, there is a way to enhance them. Withdrawals can help you make more room in your TFSA. For example, if you withdraw $2,000 in dividends from your TFSA each year, your contribution room for the next year would essentially be $8,000 instead of $6,000, giving you more room to work with.
The post CRA: 1 Huge TFSA Change in 2022 appeared first on The Motley Fool Canada.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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