Why open a TFSA?
Among many other benefits, tax-free withdrawals are a key advantage TFSAs offer. They’re a great place to hold mutual funds, segregated funds, or other kinds of investments.
TFSAs can fit both short-term and long-term financial goals. While commonly used to save up for purchases like a house or vacation, TFSAs can also be a place to put your investments to prepare for retirement. Plus, given the name, your money can grow tax-free.
Given this flexibility, TFSAs are an option for those wanting the freedom to use the money at any time. Keep in mind that for RRSPs and other registered accounts, withdrawals are taxed, making TFSAs the more viable option for shorter-term goals. When it comes time to use the money in your TFSA, there are a few rules to keep in mind. Check out the guidelines below to ensure you’re informed on the withdrawal process.
How to withdraw from a TFSA
What happens when I withdraw money from my TFSA?
Withdrawing money from a TFSA doesn’t have to be permanent — you can recontribute this amount in future years. You can use this money for big purchases, including a car, home or emergency payment.
Before withdrawing money, it’s important to understand your contribution and recontribution limits. If you’ve already maxed out your contribution room (the amount of money you’re allowed to add to your account), you need to wait until the following calendar year until you add any funds you’ve removed.
For example, let’s say Alex opens a TFSA in 2023 and adds $4,500 into the account. Because the contribution limit for 2023 is $6,500, he has $2,000 left in contribution room. In this example, his contribution room in 2024 would be the annual contribution limit, plus the unused contribution room of $2,000 from the previous year.
Then, in 2024, Alex decides to withdraw $1,000 from his TFSA. So, this amount is his recontribution room for the next year. This means Alex can only contribute the additional $1,000 to his TFSA account in 2025, the year after he withdrew that amount.
By calculating your total contribution room, you’ll be able to keep an eye on how much you’re able to contribute after withdrawing.
What is the TFSA limit?
TFSA contribution limits vary by yearOpens a new website in a new window:
- 2018 – $5,500
- 2019 – $6,000
- 2020 – $6,000
- 2021 – $6,000
- 2022 – $6,000
- 2023 – $6,500
- 2024 – $7,000
Is there a limit on how much I can withdraw?
No, for TFSAs, there’s no rule on how much you can withdraw. But remember that after you withdraw, you can only recontribute that amount the following year. Take your total contribution room into consideration when planning your withdrawal.
When can I withdraw my money?
You can withdraw from a TFSA at any time. The longer you leave your money in the account, though, the more your investments have a chance to grow. You can earn more through the compounding effect (your interest will gain interest).
How many times can I withdraw money?
You’re allowed to withdraw money as many times as you want; there are no limits.
Am I taxed on the amount I take out?
Withdrawals aren’t taxed as long as you don’t participate in day trading or “carrying on a business,” according to the Canadian Revenue Agency (CRA)Opens a new website in a new window. Specifically, common factors the CRA flags include the frequency of transactions, type of shares, and your knowledge of the securities markets. Investments that you can put in a TFSA, or “qualified investments,” include stocks, bonds, savings accounts, and mutual funds.
TFSAs are meant for long-term financial growth for your savings, not conducting frequent trades within the account. If you are doing so, gains on your investments may be taxed.
If you’re unsure about whether this applies to you, use the table below. These are the factors the CRA uses to determine if they’ll tax a TFSA account. Although these factors are a good benchmark, keep in mind that there is no standard rule on how many trades is too many.
Do I have to re-invest what was withdrawn?
No, you have no obligation to re-invest the money you withdrew.