A tax free savings account (TFSA) is a great place to shelter your savings. Here are a few personal tax tips on TFSA contributions and rules around withdrawing.
Make TFSA Contributions
The TFSA dollar limit for 2018 is $5,500 there is no deadline for making a TFSA contribution. If you are at least 18 years old in Canada, since 2009 you have a maximum contribution room of up to $57,500. To better understand this concept, let’s assume that a person who was 18+ years in 2009 has not yet contributed anything to the TFSA to date. For that person, the TFSA limit for all the years would be added, giving them a total TFSA limit of $57,500.
TFSA and withdrawing funds
Keep these rules in mind when withdrawing funds from a TFSA;
You can take out money from a TFSA any time and any amount.
You can add back the amount you have taken out, however, only if you have contribution room.
If you over contribute to your TFSA, you will be charged 1% interest in the month that you have over contributed.
Here’s an example:
- If you made a $5,500 contribution in 2018, however, you take out money for a trip in 2018. You can not put any money back into the TFSA or you will be charged 1% interest. The reason is that you have already contributed the maximum amount for 2018: $5,500. You will have to wait until 2019 to make any more contributions.
- Your maximum room for 2018 is $5,500 for your TFSA. You have contributed $3,000 and you take $3,000 out for your trip. You will only be able to contribute (5,500 – 3,000) = $2,500 in 2018.