When it comes to managing your Tax-Free Savings Account (TFSA), one common pitfall many people face is over-contributing. It’s easy to assume that withdrawing funds allows for immediate re-contribution, but the timing matters—a lot. In my year-end tax savings checklist series, I provide a quick explainer on how over-contributing to your TFSA can lead to unexpected penalties and what steps you can take to avoid them. Whether you’re planning to withdraw funds or top up your TFSA, understanding the rules around contribution room, especially at year-end, can save you a lot of trouble.
Video Transcript:
You probably know that with your TFSA, your contribution limit increases each year.
I’m George Dube, saving the world from tax one bow tie at a time®.
Shortly before the holidays, it may be the time: (1) to top up the TFSA; (2) perhaps, if you’re considering in the next little bit withdrawing funds from the TFSA, do so before the end of the calendar year.
The rules around TFSA withdrawals
While it seems simple to say your contribution room, if you take funds out, is replenished—so, for example, you may take $50,000 out of your TFSA and you can re-contribute the $50,000 later—the catch is that that $50,000 of additional contribution room, in our example, gets triggered the next calendar year.
Avoiding over-contributing to your TFSA
So many people accidentally over-contribute, not realizing when that re-contribution limit is, if you will, reinstated. So again, be careful of your contribution room. It doesn’t hurt to double-check online with the CRA to see what your room is.
Making strategic year-end moves
And if you are considering taking funds out in the next little bit, give some serious thought to doing so before the end of the holidays, before the calendar year. Maybe you’ll not re-contribute at all, but it keeps a door open should your circumstances change, your plans change—whatever it may be.
Stay informed and plan ahead
We just don’t want to see you over-contributing during the year.
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Check out the next video in the series.
I want to help you Do Wonderful Things®.
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Resources
For additional resources related to the year-end tax savings, see:
More questions?
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Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
