How Much Money Can I Put in My TFSA?
Accurately determine your TFSA contribution limits, understand the rules, and manage your account effectively to maximize tax-free growth.
A Tax-Free Savings Account (TFSA) is a registered savings plan that helps individuals save money and invest without paying tax on the investment income earned within the account. This includes interest, dividends, and capital gains. While the TFSA offers significant benefits, it is important for readers in the United States to understand that this account is a Canadian financial product, designed for Canadian residents. This article will explain the rules and mechanisms of the TFSA for those seeking to understand this type of savings vehicle.
Understanding TFSA Contribution Limits
The Canada Revenue Agency (CRA) sets an annual contribution limit for the TFSA, which can change each year. For 2025, the maximum TFSA contribution limit is $7,000.
Unused contribution room from previous years accumulates and carries forward indefinitely. This means if someone does not contribute the maximum amount in a given year, the remaining room is added to their limit in subsequent years. For example, if the annual limit is $7,000 and only $5,000 is contributed, the unused $2,000 carries forward.
Withdrawals from a TFSA also impact future contribution room. Any amount withdrawn from a TFSA is added back to the individual’s contribution room at the beginning of the following calendar year. This allows for flexibility, as withdrawn funds can be re-contributed later without permanently reducing the overall savings capacity.
To be eligible to accrue TFSA contribution room, an individual must be a Canadian resident and at least 18 years of age. Even if a TFSA is not opened, contribution room begins to accumulate from the year an individual turns 18, provided they are a Canadian resident with a valid Social Insurance Number (SIN).
Calculating Your Personal TFSA Contribution Room
The starting point for calculating personal TFSA contribution room is the total accumulated room since the TFSA program began in 2009, or since the year an individual turned 18, whichever is later. This accumulated room includes the annual dollar limits for each eligible year.
From this accumulated room, all contributions made to date across all TFSAs must be subtracted. Contributions reduce the available room for the current year. Any withdrawals made in previous years are then added back to the contribution room, effective the following calendar year.
For example, if someone was 18 or older in 2009 and has been a Canadian resident since then, their total cumulative contribution room up to 2025 could be $102,000, assuming no prior contributions or withdrawals. If they have contributed $50,000 over the years and withdrew $10,000 last year, their current contribution room would be calculated by taking the total cumulative room, subtracting total contributions, and adding back the previous year’s withdrawals. This calculation provides a personal maximum amount that can be contributed without penalty.
What Happens if You Over-Contribute to Your TFSA
Exceeding the TFSA contribution limit has specific financial consequences. An over-contribution occurs when the total amount contributed to a TFSA surpasses an individual’s available contribution room, including any re-contributions made within the same year that push the total over the limit.
The Canada Revenue Agency (CRA) imposes a penalty tax of 1% per month on the highest excess amount. There is no buffer amount for TFSA over-contributions, meaning even a small excess amount triggers the tax.
To correct an over-contribution and stop further penalties, the excess amount should be withdrawn from the TFSA as soon as possible. Prompt action helps to minimize the total tax payable. While the CRA may send a notification of an over-contribution, it is the individual’s responsibility to track their contribution room and address any excess amounts quickly. Individuals may also need to file a specific form, Form RC243 (TFSA Return), to report the excess amount and pay the tax.
How to Find Your Official TFSA Contribution Room
The most reliable way to determine your precise TFSA contribution room is through the Canada Revenue Agency (CRA). The CRA tracks each individual’s TFSA contribution room based on information reported by financial institutions. Relying on your own records is advisable, but the CRA’s data is the definitive source.
Individuals can access their official TFSA contribution room by logging into their CRA My Account online portal. The platform typically has a section dedicated to TFSA information, where the current contribution room can be viewed. It is important to note that the CRA’s online information may not immediately reflect very recent transactions, especially in the early months of a new year, as financial institutions need time to report all data from the previous year.
For those who prefer not to use the online portal, the CRA’s Tax Information Phone Service (TIPS) also provides access to TFSA contribution room information. When calling, individuals typically need to provide personal identification details like their Social Insurance Number and date of birth to verify their identity.