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How TFSA Limits and Withdrawal Rules Work

Tax-free savings accounts (TFSAs) have rules on how much you can contribute each year. Exceed your limit, and you’ll rack up financial penalties.

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The tax-free savings account (TFSA) is a familiar acronym in the world of saving and investing. The TFSA was introduced in 2009 to encourage Canadians to squirrel away after-tax dollars and offers a few distinct advantages. First, all interest and investment gains grow tax-free. You can also withdraw your savings at any time, and you don’t have to worry about being taxed on withdrawals.

However, you can’t reap endless tax-sheltered benefits from the TFSA—the government puts limits on how much individuals can contribute each year. It’s also important to keep track of your deposits because the Canada Revenue Agency (CRA) doles out financial penalties if you go over the annual TFSA dollar limit.

TFSA contribution limits

TFSAs have annual contribution limits, which may change from year to year. When TFSAs first started in 2009, the annual limit was $5,000. A notable outlier year was 2015, when the annual limit was increased to $10,000. It dropped back down to $5,500 in 2016, and is now indexed to inflation and rounded to the nearest $500. The TFSA 2020 limit is $6,000.

To open a TFSA, you must be a resident of Canada and have a valid social insurance number (SIN). You also need to be at least 18 or 19 years old, depending on the age of majority in the province or territory where you live. Contribution room starts accumulating on Jan. 1 the year you turn 18, even if you live in a province where the age of majority is 19.

If you were at least 18 years old in 2009 (the year TFSAs were introduced), your contribution room started accruing that year. TFSAs are for individuals only, and can’t be opened as a joint account with a spouse or family member. The same goes for contribution limits: every individual is tied to their own contribution limit, and can’t share or combine yearly limits with anyone else.

Here’s a look at historical TFSA annual dollar limits:

YearTFSA annual contribution limit
TFSA cumulative limit
2009$5,000$5,000
2010$5,000$10,000
2011$5,000$15,000
2012$5,000$20,000
2013$5,500$25,000
2014$5,500$31,000
2015$10,000$41,000
2016$5,500$46,500
2017$5,500$52,000
2018$5,500$57,500
2019$6,000$63,500
2020$6,000$69,500

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If you were at least 18 years old in 2009 and have never contributed to a TFSA, there’s a lot of room waiting for you: as of 2020, you’re eligible to deposit up to $69,500.

Unused TFSA contribution room

Good news: If you don’t max out your TFSA contribution limit in any given year, all unused room rolls over to the next year, and the year after that, and so on.

There’s more good news: When you make withdrawals from a TFSA, you get that contribution room back—but not until Jan. 1 of the next calendar year.

Example: Let’s say you withdraw $1,000 from your TFSA on June 1. You’ll get that room back, but you’ll have to wait six months until Jan. 1. If you still have additional unused contribution room for the rest of the year, you can keep contributing to your TFSA between June and January. Just make sure to leave a buffer of $1,000 until Jan. 1 of the next year.

How much can you withdraw from a TFSA?

TFSAs don’t have withdrawal limits, so you can take out as much money as you want, whenever you want. However, your financial institution may charge a fee for withdrawals or account transfers. If your money is invested, it may take a few business days to divest your funds and transfer the money to your bank account.

TFSA withdrawal rules are more flexible than other registered accounts, such as the registered retirement savings plan (RRSP). Because money contributed to a TFSA has already been taxed, you won’t owe any taxes when you make withdrawals, unlike an RRSP. You can also hold onto a TFSA for life, but you have to close and convert your RRSP by Dec. 31 the year you turn 71.

Because it’s easier to access your money, TFSAs can be used for short-term savings goals such as planning a wedding, vacation or honeymoon, buying a new car, home renovations or building an emergency fund. However, TFSAs can also be used for long-term savings goals such as retirement, buying a home or future university education.

Whatever you’re saving and investing for, keep in mind that your money needs time to compound and grow—the sooner you start contributing to a TFSA, the better.

How do I find out my TFSA contribution limit?

One way to find out your current TFSA limit is by logging into your CRA My Account. Because a TFSA is a type of registered account and is linked to your SIN, the CRA is able to track all contributions even if you have multiple accounts at different institutions.

The CRA only updates your account information once a year, on Jan. 1. Any contributions or withdrawals made during the rest of the year will not be accounted for on your CRA My Account. If you’ve made previous deposits but haven’t contributed money to a TFSA during the current calendar year, you can check your TFSA contribution room on your last income tax return.

You can also do a DIY calculation using an online TFSA contribution room calculator. You’ll be asked to plug in a few details, including:

  • The year you turned 18
  • How much money you’ve contributed to your TFSA in total
  • How much money you’ve withdrawn from your TFSA in the current calendar year

What happens if you exceed your TFSA limit?

If you go over your annual TFSA limit, you’ll be fined by the CRA. Anything over your personal contribution limit is called a “TFSA excess amount,” and is taxed at a rate of 1% per month.

Example: If you overcontribute to your TFSA by $500 and let that excess amount sit in your account for six months, you would be charged a total $30 in penalties ($5 per month x 6 months). Note that compound interest doesn’t apply here—you’re only charged the 1% penalty on the amount you overcontribute by. In order to stop getting taxed on that $500, you need to withdraw the entire excess amount from your account.

It’s important to note that only deposits count against your TFSA contribution limit. Interest or investment earnings earned on your contributions don’t count. You won’t be penalized in any way if your investments perform well, even if it technically takes you over the contribution limit.

Can I have a TFSA with two different banks?

Yes. You can open as many different TFSAs as you want, but annual contribution limits apply across all accounts. If you open three different TFSAs and have $10,000 in available contribution room for the year, you can contribute up to $10,000 across all three accounts in total.

If you’re making deposits into multiple TFSA accounts, it’s up to you to track your available contribution room for the year. Depending on where you open your TFSA (bank, credit union, caisse populaire, trust company, investment firm or insurance company), the provider may offer tools to track deposits and withdrawals.

The TFSA is a relatively newer way for Canadians to save and invest, but it’s grown into a popular option to meet a variety of financial goals. While you don’t have to worry about any future taxation on earned interest, investment gains or withdrawals, you risk being charged a financial penalty on your taxes if you overcontribute. Too keep track of your available contribution room, use tracking tools and spreadsheets, check your CRA My Account, or use an online calculator.

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Writer

Jane Switzer is a Toronto-based personal finance writer and editor. Driven by her interest in financial journalism, she completed the Canadian Securities Course and has covered topics including saving, debt, credit scores and investing for websites like Ratehub. Her work has appeared in several publications such as the National Post, Globe and Mail, Toronto Star and Maclean's.

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