Avoid Overcontributing to your TFSA

Many people contribute too much to their TFSA and it isn’t always something you do on purpose. It can happen if you’ve set up automatic deposits and forget to adjust them, or if you’ve got TFSAs at more than one bank and lose track of your total. Because the Canada Revenue Agency (CRA) looks at all your accounts combined, even a small slip-up can mean you’ve gone over the limit.

Here’s how the rules work. Your TFSA contribution room comes from three things:

• The yearly limit (which is $7,000 for both 2024 and 2025)
• Any unused room from past years, and
• Withdrawals you made in earlier years (not including direct transfers between banks)

If you’re not sure how much room you have left, the easiest way to check is by logging into your CRA My Account. There, you can see your contribution limit, confirm your TFSA is properly registered, and review past transactions. Your bank can help too, but ultimately, it’s your responsibility to stay within your limit.

So, what happens if you go over? Unfortunately, it can be costly. The CRA charges a penalty of 1 per cent per month on the extra amount sitting in your account. For example, if you overcontribute by $2,000 and don’t notice for three months, you’ll end up owing $60 in penalties. And that’s money that could have been earning you interest or growing in investments.

The good news is, if you do accidentally overcontribute, you can fix it. Pull the extra money out of your TFSA as soon as you realise, and that will stop further penalties from piling up. The CRA may even waive or cancel the charges in certain situations if you explain what happened and why it was an honest mistake.

The TFSA really is one of the best savings tools Canadians have, but only if you keep an eye on your contribution room. A quick check with the CRA before you add extra funds can save you a big headache later.