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 2012 until the end of 2018 Cedric contributed the maximum TFSA dollar amount each year to his TFSA. In 2019, the TFSA dollar limit is $6,000 and Cedric contributes $2,000 for that year. He now has an unused TFSA contribution room of $4,000 calculated as below:

2019 TFSA dollar limit ($6,000) minus 2019 contributions ($2,000) = unused TFSA contribution room available for future years ($4,000)

In 2020 and 2021, Cedric does not contribute to his TFSA, but he makes a $1,000 withdrawal from his account in 2020. Even though he makes this withdrawal in 2020, it will not be added to his TFSA contribution room until 2021. The calculation below shows his TFSA contribution room for 2020, 2021 and 2022:

2019 unused TFSA contribution room ($4,000) + 2020 TFSA dollar limit ($6,000) = 2020 unused TFSA contribution room available for future years ($10,000)

Cedric's TFSA contribution room for 2021:

2020 unused TFSA contribution room ($10,000) + 2020 withdrawals ($1,000) + 2021 TFSA dollar limit ($6,000) = TFSA contribution room at the beginning of 2021 ($17,000)

Cedric's TFSA contribution room for 2022:

2021 unused TFSA contribution room ($17,000) + 2022 TFSA dollar limit ($6,000) = TFSA contribution room at the beginning of 2022 ($23,000)

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 2021, she has no TFSA contribution room left. In 2022, Jenny makes a $6,000 contribution, the TFSA dollar limit for 2022. 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 2023 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2023.

If she re-contributes any of the withdrawn amount before 2023, 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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