THE SHORT · REGISTERED PLANS
Taking $5,000 out of your TFSA and putting it back the same year is not neutral
The room you free up by withdrawing does not come back right away. It comes back on 1 January — and that is the most common way to over-contribute without knowing.
The name says "savings account", so people use it like one: take out, put back. It is not a savings account. It is a tax shelter with a counter, and the counter does not reset when it suits you.
The typical case. You have used all your room. In March, something unexpected: you withdraw $5,000. In November, things are better: you put it back.
| Month | Action | Room left |
|---|---|---|
| January | Your room is fully used | $0 |
| March | $5,000 withdrawal | $0 — the room returns next January |
| November | $5,000 deposit | −$5,000: excess contribution |
| 1 January | The room from March's withdrawal is added | Restored |
Between November and January, you are over the limit. The Canada Revenue Agency applies a monthly tax on the excess for as long as it lasts — the amount is on its page, and it is not symbolic.
The trap comes down to one sentence: the room freed by a withdrawal returns the following calendar year, not the following month, not when you put the money back.
Two details that avoid the neighbouring mistakes. The current-year room shown by the CRA is often dated from the start of the year: your recent contributions are not in it yet. And a transfer between two TFSAs is made directly between institutions; taking money out of one to put it into another is not a transfer, it is a withdrawal followed by a contribution.
TFSAs and RRSPs do not behave the same way here — the RRSP never returns the room you used. Our breakdown on choosing between the two puts numbers on it.
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