About a month ago, I published a piece citing the contribution amounts available for the TFSA account, and a short note on how they work, but as I have been listening to people talk RRSP vs TFSA lately (they call this RRSP season which is one of the most idiotic things I have ever heard), I realize that people still do not understand completely how these accounts work........so here we go.
Let's say you have never contributed to a TFSA before and it's 2018. Your available room to contribute is $57,500 so you do so in Jan 2018. Right away you buy ABC inc for $100/share and you spend the whole kitty on a single purchase (because you are an investor with conviction!!). Fast forward to August 2018 and the stock has risen 100% to $200/share. You have doubled your money from $57,500 to $115,000!!
In September you decide to buy a cottage because you are a smart investor and you deserve a reward. You withdraw the entire $115,000 from the TFSA tax free and make the purchase!
In Jan 2019 you win a jackpot playing a slot machine and want to put your winnings into the TFSA to refill the account. What can you put in? Did you lose your contribution room? You doubled your money so what about that too???
Come Jan 2019 you would have an additional allowable contribution (for 2019 tax year) of $6,000 bringing your base amount to $63,500. HOWEVER...you also get to contribute the amount you withdrew as well therefore, your total amount you can put into the TFSA is......
- $57,500 + $6000(new 2019) + $57,500 (your previous gain) for a total of $121,000