Last updated: January 19, 2024
There are only a few rules when it comes to withdrawing money from a tax-free savings account (TFSA). TFSA rules are designed to provide flexibility. However, it’s important to follow the rules in order to avoid penalties or tax consequences.
Here are the basic rules you should know about TFSA withdrawals, including limits, fees and penalties, as well as tax implications.
Table of contents:
You can typically withdraw any amount from your TFSA, at any time. Some withdrawal restrictions and limitations may apply to certain investments. For example, depending on your investments, you may not be allowed to make withdrawals until the end of a specific term.
Yes, you can re-contribute your TFSA withdrawals, but not until the following year. Any amounts you withdraw in the current year will get added back to your contribution room in the following year. You can also contribute during the current year if you have contribution room available.
Yes, you can transfer your TFSA between financial institutions without affecting your contribution room. However, you’ll want to make sure that the transfer is done directly between institutions.
If you withdraw from a TFSA and re-deposit the funds into another TFSA, you may trigger an accidental over-contribution. Withdrawals from a TFSA can’t be contributed to another or the same TFSA in the same year. You must have unused TFSA contribution room before the amount can be re-contributed to your TFSA. Alternatively, you can wait until the beginning of the following year to recontribute – at this point, the amount you withdrew is added back to your TFSA contribution room.
However, let’s say you wanted to stay invested in a TFSA, and you wanted to move your investments from one financial institution to another. In this case, you can ask the receiving financial institution to complete a direct transfer on your behalf. A direct transfer means that your issuer would transfer your TFSA directly to your desired financial institutions. If the transfer is not done directly, you risk incurring tax penalties.
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No, TFSA withdrawals are tax-free, and you don’t need to report them on your income tax return.
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