There was an important announcement for investors today...the contribution limits on TFSA (Tax-Free Savings Accounts) have been raised to $5,500 from the former $5,000.

This might seem like an almost meaningless increase, but over time these little increases offer investors a golden opportunity to create a tax-free, passive income stream.  If the TFSA would have been around when I started investing, it would have helped me on my journey to freedom 34 - and this vehicle can help ANY investor - if they do things right.

I've met some people who have stuffed their TFSAs with low-paying savings accounts or GICs.  For some investors, this might make sense, but for most people, they might want to consider the benefit of tax-free growth and income and consider solid, dividend-paying stocks.

With today's announcement, I decided to check my TFSA account (and my wife's as well - which  I also manage).  We've maxed out our contributions every year (in January), so with the $5,000 previous limit, we've contributed a total of $20,000 each.  We've also never taken any money out of these plans.  Many readers have asked me what my long-term investment track record is, but I've never really kept track because during the years I have added or taken money out of my investment accounts.  But with the TFSA, I had the benefit of clear contribution amounts with no money ever taken out. 

Our TFSA accounts (which are invested in my staple of conservative, dividend-paying stocks) have grown to $31,465 for me and $28,819 for my wife.  So my TFSA has grown at a rate of 19% per year while my wife's account has managed returns of around 15% per year.  Realize that these returns have been with solid, blue-chip stocks, not high-risk speculations.  Also...THESE RETURNS ARE UNREALISTICALLY HIGH AND I WOULD EXPECT A LONG-TERM RETURN OF AROUND 10% (THE LONG-TERM AVERAGE RETURN STOCK MARKETS HAVE AVERAGED OVER A NUMBER OF DECADES).

But how does this make it a "million-dollar investment option"?

Let's crunch some numbers...For someone with a 25-year investment horizon (and this might still be you even if you're a little older because you might want to draw down your RRSP before tapping into your TFSA), who invests thier $5,500 per year starting January 2013 and earns the long-term average stock return of 10%, their investment would grow to almost $600,000.  If they have a spouse who managed the same returns, they would end up with an extra $1,200,000 together (ALL TAX-FREE INSIDE THIER TFSA!!!)

I realize that a little over a million dollars might not be a huge amount in 25 years, but it would be a very nice addition to other savings and/or pension income...just food for thought.

So if you do nothing else, at least contribute as much as possible to your TFSA this year and if you usually max it out, kick in the extra $500.

As an aside, if a TFSA earned 19% per year for 25 years (that my TFSA has earned so far) instead of the 10% I assumed above, then our couple would end up with a little over $5,200,000 or $4 million extra!!!  But that's unlikely to happen - unless you still believe in the Tooth Fairy.