TFSAs: Who really benefits from new contribution limits?

The fight for the "middleclass" is often a key part of every election campaign and one that is fought on many fronts.

TheLiberal leader announced today that he will raise taxes on people earning less than $60,000a year.- Employment Minister PierrePoilievre

The contribution limiton tax-free savings accounts has already presented itself as one.

The federal government used last month's budget to make good on an election promise it "doubled"the contribution limit ontax-free savings accounts.

TheTFSAlimit is going to $10,000from the current $5,500.The Conservatives made thepromise to double the limitwhenit was $5,000, whichiswhy the move is often referred to as "doubling," when, technically, it only increasesby 82 per cent.

Liberal Leader Justin Trudeauhas sincepromisedto roll back the limit to $5,000 and use the extra tax revenue to pay for enhanced family benefits.

The spin

The government is portraying TFSAs as an important savings tool for all Canadians, especially the much-vaunted middleclass.

"Most of the people who have maxedout their tax-free savings accounts earn less than $60,000 dollars a year," Employment Minister Pierre Poilievretold the House of Commons last week.

"Some are saving money to buy their first home, or to start their first business. Some are saving to put their children through college or university,"Finance Minister Joe Oliver added in the budget speech."Others are putting away extra income to make their hard-earned retirement more comfortable and enjoyable."

The counter spin

Liberal Leader Justin Trudeausays he isn`t against TFSAs in principle but believes the benefits diminish as the program expands.

"The TFSA itself, up to $5,000, is an encouragement to people to save," he said,"but the reality is there's not a lot of people who, at the end of the year, have $10,000 laying around that they can invest."

Numbers don't lie usually

It's usually tough to spin numbers but not impossible.

It is true that the majority of those who maximize their TFSA earn less than $60,000 a year.

Of the approximately 1.9 million Canadians who hit the $5,500 cap in 2013, 1.1 million claimed income of less than $60,000.

That's a whopping59.6 per cent of TFSA holders.

However, noteveryone has one,and there are about 23 million in that income bracket number who are eligible.

So, when compared to everyone eligible to make contributions, only about 5 per cent are putting as much dough as they can into TFSAs a far less impressive statistic.

The age effect

Another factor is age.

According to Finance Canada reports, many of those hitting the TFSA maximum in the initial years of the program are transferring existing taxable savings into the sheltered accounts.

In fact, if you look at those who are expected to have mature savings accounts 55 and over they make up 70 per cent of those who hit the cap.

Of those under 55 and making less than $60,000 (presumably those "saving money to buy their first home, or to start their first business") about 270,000 fully loadedup their TFSAs.

And that represents only about 1 per cent of the total adult population of the country.

The final rinse

Who benefits seems to be more tied to age than income,although both are obviously factors.

Fully one in fivepeople over the age of 75 maximized theirTFSAs only about 1 per cent of 18 to 24 year-olds have done the same.

And there is another factor to consider when looking at the numbers:Many financial advisors recommend parents and grandparents who have maxed-out their own TFSAs put extra cash in the accounts of their children or grandchildren.

The practice is perfectly legal, shelters the money from taxes, and even if the money is later withdrawn the interest earned on it while in junior's TFSA will permanently boost the contribution limit.

The finance department's numbers show there were actually slightly more 18-to 24-year-olds making less than $20,000a year that maxed out their TFSAs in 2013 than those aged 55 to 64 making between $150,000 and $200,000who did the same.