Making or replacing withdrawals from a TFSA

Making withdrawals

Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time.  Withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year. 

Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.

Example

From 2011 until the end of 2016 Cedric contributed the maximum TFSA dollar amount each year to his TFSA. In 2017, the TFSA dollar limit is $5,500 and Cedric contributes $2,000 for that year. He now has an unused TFSA contribution room of $3,500 calculated as below:

2017 TFSA dollar limit ($5,500) minus 2017 contributions ($2,000) = unused TFSA contribution room available for future years ($3,500)

In 2018 and 2019, Cedric does not contribute to his TFSA, but he makes a $1,000 withdrawal from his account in 2018. Even though he makes this withdrawal in 2018, it will not be added to his TFSA contribution room until 2019. The calculation below shows his TFSA contribution room for 2018, 2019, and 2020:

2017 unused TFSA contribution room ($3,500) + 2018 TFSA dollar limit ($5,500) = 2018 unused TFSA contribution room available for future years ($9,000)

Cedric's TFSA contribution room for 2019:

2018 unused TFSA contribution room ($9,000) + 2018 withdrawals ($1,000) + 2019 TFSA dollar limit ($6,000) = TFSA contribution room at the beginning of 2019 ($16,000)

Cedric's TFSA contribution room for 2020:

2019 unused TFSA contribution room ($16,000) + 2020 TFSA dollar limit ($6,000) = TFSA contribution room at the beginning of 2020 ($22,000)

Replacing withdrawals

If you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but do not have contribution room, you will have over-contributed to your TFSA in the year. You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.

For more information on withdrawing amounts from your TFSA, contact your TFSA issuer.

Example

Since opening her TFSA in 2009, Jenny has contributed the maximum TFSA dollar limit each year. At the end of 2019, she has no TFSA contribution room left. In 2020, Jenny makes a $6,000 contribution, the TFSA dollar limit for 2020. Later that year, she withdraws $3,000 for a trip. Unfortunately, her plans change and she cannot go. There are choices Jenny could make regarding her TFSA withdrawal as described bellows.

If Jenny wishes to re contribute part or all of the $3,000 she withdrew, she will have to wait until the beginning of 2021 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2021.

If she re contributes any of the withdrawn amount before 2021, she will have an excess amount in her TFSA and will be charged a tax equal to 1% of the highest excess TFSA amount for each month that the excess stays in her account.

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