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January 07, 2022

By 2013, why don't more than 1/3 of Cdns. have a TFSA?

Perhaps Jim Flaherty is unlike many of the world's finance ministers.

Certainly, he has experience besides just banking. He's an MP, and became Ontario's Deputy Premier in 2001.

Because of this, then, Flaherty surely learned how politics affect people on the ground, a principle clear in his most lasting legacy to date as Canadian Minister of Finance.

Flaherty's tax-free savings account (TFSA) turns five this year, a peculiar milestone when you consider it probably made the job of the country's top money man much, much tougher.

In 2008, Flaherty created the TFSA, allowing all Canadians to save $5,000 per year completely sheltered from tax penalty.

*Bing: What you need to know about the TFSA

It was a peculiar move for Flaherty, who could most definitely have used the tax revenue he was now allowing Canadians to keep for their own. Over the past five years, Canadians have put $62 billion into TFSAs that Flaherty and his government budget haven't been able to touch. It would be akin to you offering to have more tax taken from your paycheque each week.

But such has been the offering from Flaherty, a rare gesture from a politician that seems free of politics.

A fair question, though: are Canadians taking enough advantage of the TFSA?

"TFSA vs. RRSP" has been a long-standing debate, even though the savings vehicles are much different.

The TFSA, however, is simple. Put in $5,000 per year -- no more, or you'll get taxed -- and enjoy the tax-free gains. That $5,000 per year is a rolling amount, so you can put it in each year. In other words, after five years you can now have $25,500 in your TFSA (that extra $500 comes from the TFSA contribution limit rising to $5,500 in 2013).

Yet Canadians aren't maxing out their TFSAs, according to the latest numbers.

Only about a third of eligible Canadians even have TFSAs, and of those they've only contributed an average amount of $7,560, far short of the $25,500 max available today.

Not everyone just has $25,500 lying around to save, granted, but why haven't more Canadians taken advantage of the gift of the TFSA?

Is your TFSA contribution room maxed out? Why or why not?

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...