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 2013 until the end of 2020, Cedric contributed the maximum TFSA dollar amount each year to his TFSA. In 2021, the TFSA dollar limit is $6,000 and Cedric contributes $2,000 for that year. He now has an unused TSFA contribution room of $4,000 calculated as below:

Unused TFSA contribution room available for future years
2021 TFSA dollar limit
  $6,000        
2021 contributions
$2,000
Unused TFSA contribution room available for future years = $4,000        

In 2022 and 2023, Cedric does not contribute to his TFSA, but he makes a $500 withdrawal from his account in 2022. Even though he makes this withdrawal in 2022, it will not be added to his TFSA contribution room until 2023.

The calculation below shows his TFSA contribution room for 2022, 2023, and 2024:
2021 unused TFSA contribution room
  $  4,000
2022 TFSA dollar limit
+ $  6,000
2022 unused TFSA contribution room available for future years
= $10,000         
Cedric’s TFSA contribution room for 2023
2022 unused TFSA contribution room
  $10,000   
2022 withdrawal
+ $     500
2023 TFSA dollar limit
+ $  6,500
TFSA contribution room at the beginning of 2023 = $17,000
Cedric’s TFSA contribution room for 2024
2023 unused TFSA contribution room
  $17,000  
2024 TFSA dollar limit
+ $  7,000
TFSA contribution room at the beginning of 2024
= $24,000

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 2023, she has no TFSA contribution room left. In 2024, Jenny makes a $7,000 contribution, the TFSA dollar limit for 2024. 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 below.

If Jenny wishes to re-contribute part or all of the $3,000 she withdrew, she will have to wait until the beginning of 2025 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2025.

If she re-contributes any of the withdrawn amount before 2025, 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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