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How to make the most of your TFSA contribution limit
The TFSA, or Tax-Free Savings Account was first offered in 2009 as a way for Canadians to enjoy tax-free growth on their savings. With a TFSA, you can make eligible investments, and those savings can grow tax-free.
All interest, dividends, and capital gains earned in your TFSA are not taxed (with some exceptions), when earned and when withdrawn.
Here are 10 ways to make the most of your TFSA :
1. Understand your TFSA contribution limit
TFSAs have a yearly contribution limit. This means you're only allowed to contribute a certain amount of money into a TFSA every year. And exceeding your limit results in monthly taxation on the excess amount. That's why it's important to have a clear idea of your contribution limit before you begin investing in a TFSA.
Your yearly contribution room will include the amount prescribed by the government and any unused contribution room from previous years. In addition, withdrawals from previous years are added back to your contribution room starting on January 1 in the year following the withdrawal. For example, the annual TFSA contribution limit in 2025 is $7,000. However, if your unused contribution amount from 2024 was $2,000, this amount is carried forward to 2025, giving you a total contribution limit of $9,000.
Your contribution limit for each year is determined by adding three amounts:
- Prescribed yearly contribution limit—$7,000 for 2025
- Any amount you may have withdrawn in a previous year (not including direct transfers out of one TFSA to another TFSA)
- All unused contribution room from previous years
2. Refrain from over-contributing to your TFSA to avoid penalty
Each contribution to your TFSA counts toward your contribution limit. Withdrawals from your account will not affect your contribution limit but you will not regain contribution room from withdrawals until the following year. Let's say, for example, your TFSA contribution limit for 2025 is $8,000. You contribute $6,000 in March, leaving you with a contribution room of $2,000 for the rest of the year. If you withdraw $4,000 in October, your contribution room does not change until 2026. At this point, you may only contribute an additional $2,000. If you deposit the withdrawn amount of $4,000 back into your account in 2025, you will exceed your contribution limit.
You can avoid over-contribution by:
- Staying informed on the prescribed annual limit for each calendar year, and ensuring your contributions are within the allowed amount.
- Being cautious when moving your TFSA from one financial institution to another— you may want to choose to make a direct transfer instead of withdrawing from one account and re-contributing into another, which may lead to over-contribution, and a monthly tax of 1% on the excess amount.
- You can check your total available contribution room via Canada Revenue Agency's e-services or call center services.
- Information provided in your Canada Revenue Agency account (MyCRA) may not be immediately updated to include your most recent transactions. To avoid accidental over-contributions, it is wise to track your TFSA contributions and withdrawals yourself.
3. Know TFSA contribution basics & eligibility

Keep in mind that the accumulated amount of your TFSA contributions over multiple years can be significant. To maximize the benefits of your TFSA account, ensure that you're aware of a few basic rules:
Since TFSAs were only introduced in 2009, there are two ways to measure your contribution room, for those who have never contributed to a TFSA. If you were 18 or older in 2009, your TFSA contribution room is $102,000 in 2025. If you were 18 any time after 2009, your contribution room begins to accumulate annually at age 18. Please note, there are other factors that may influence your actual contribution room so it's best to confirm with CRA.
You can only make contributions to your TFSA while you are a resident of Canada. If your status changes to 'non-resident of Canada,' you will be allowed to retain your TFSA account, and the income within your account will remain tax-free for Canadian income tax purposes. However, you will not be able to make further contributions to your TFSA, and your contribution room will not accumulate for any year throughout which you are non-resident. Please check with your tax advisor regarding possible non-Canadian tax implications.
4. Understanding TFSA withdrawal rules
The amount you have in your TFSA is always available to you1. You can withdraw a part of or all the funds in your TFSA tax-free (with an exception of a 15% withholding tax on U.S. dividends). Any amount withdrawn (including the income or growth which exceeds your original contributions) will be added back to your contribution room, but only starting in the following year. If you have already used up your contribution room for the current year, you will have to wait until the first day of the next year to re-contribute the withdrawn amount.
You are allowed to make in-kind withdrawals from your TFSA to a non-registered account. When transferring to a non-registered investment account, the current value of your TFSA investment will become the cost basis of the non-registered investment, which will determine future gain or loss incurred when the investment is eventually sold.
To transfer investments from a TFSA to an Registered Retirement Savings Plan (RRSP), the securities must be 'de-registered' to a non-registered account first before being contributed to an RRSP. Keep in mind that the current market value of your investment will determine the amount transferred into a different account. When transferring to an RRSP, your contribution amount will be equivalent to the current value of the investment.
You can take advantage of in-kind withdrawals when you require additional funds in order to help maximize your RRSP contribution for the year. You will still have the flexibility to re-contribute your withdrawn amount into your TFSA later, if you still have contribution room available or once your contribution room is refreshed in the following year.
5. Manage multiple TFSAs efficiently to stay within limit
You're allowed an unlimited number of TFSAs, as long as your combined contributions remain within your yearly contribution limit. When managing more than one TFSA, take care to regularly check your contribution in each account and verify the sum against your total contribution limit to avoid any accidental over-contribution.
6. Diversify your investments
Your investment advisor can guide you on ways to diversify your portfolio within your TFSA. You may want to choose to invest in multiple securities. This can include mutual funds, Guaranteed Investment Certificates (GICs) and Exchange-Traded Fund (ETFs), among others. You may also choose to manage your own investment portfolio and opt for a self-directed TFSA, which will allow you to manage multiple investments within a single TFSA.
7. Automate your TFSA contributions
Maximizing your TFSA's potential means ensuring it's always working for you. A key strategy is to contribute early, so your investments have more time to grow. Make sure you're consistently contributing to your TFSA by enabling automated deposits into your account. This will keep your TFSA growing in a tax-free environment. Remember to ensure that you stay within your contribution room.
8. Manage the frequency of trading within your TFSA
Your TFSA is generally meant to be used for investment purposes, and not to carry on a business. Depending on the circumstances, frequent trading activity may be considered a business—even if it is taking place within your TFSA. According to the Income Tax Act, a TFSA that is found to be operating as a business will be subject to income tax on the income earned from that business.
In recent years, the Canada Revenue Agency (CRA) has increased their scrutiny of registered plans such as TFSAs which are engaged in frequent trading and/or speculative transactions.
Several factors are considered when determining whether a TFSA is considered to be carrying on a business. These include transaction frequency, term of investments, intention to buy securities with short-term profit goal, types and number of securities, investment expertise, and hours spent on trading activities.
9. Plan for the long-term
Your TFSA account is one method to save for the future and may come in handy in several situations. In case of early retirement, for example, you may need to wait a few years before you're eligible to receive a pension. At that time, withdrawing from your RRSP may not be the preferred approach either as withdrawals from RRSPs or Registered Retirement Income Fund (RRIFs) are taxable. In contrast, the funds in your TFSA account are received tax-free (with some exceptions) upon withdrawal. This can make a TFSA a flexible investment tool for your retirement alongside your RRSP.
10. Designate a beneficiary
An important part of your TFSA strategy should include designating a beneficiary. This ensures that your beneficiary can have immediate access to your TFSA funds in the event of your death. Other potential benefits of designating a beneficiary include avoiding probate fees and situations where assets that become part of the estate end up being inaccessible due to lengthy processes.
Designating a beneficiary is easy—simply include the name of the individual on the TFSA application form or related document. Alternatively, you can add your estate as the beneficiary. Where certain conditions are met, a spouse or common-law partner may be able to transfer the value of the TFSA at the time of death into their own TFSA without impacting their own contribution room.
You also have the option to designate a spouse or common-law partner as a successor holder of the TFSA, in which case the tax-free status of the TFSA is maintained and they effectively become the new holder of the TFSA upon your death.
True flexibility – TFSA vs. RRSP
When comparing TFSAs and RRSPs, flexibility is one of the key differentiators. TFSAs allow you to contribute and withdraw money within limits, without having to pay taxes (with some exceptions). In contrast, RRSPs treat most withdrawals as income, thus incurring taxation—even when withdrawing during retirement. Since income from your TFSA is tax-free (with some exceptions), it can be a sound strategy for maximizing the return on your investments.
TFSAs can work well for multiple savings goals, providing a great way to save for short-term needs as well as long-term goals such as retirement. While RRSPs are generally converted into RRIFs which require minimum annual withdrawals starting in the year after the year you establish an RRIF, TFSAs can continue to grow your money for however long you choose. Start evaluating the opportunities you could leverage with a TFSA, keep an eye on your contribution limits, and start investing to make your money work for you. With the exception of U.S. dividends where there is a 15% withholding tax, your investments will be tax free.
Frequently asked questions
What is the 2025 TFSA contribution limit?
TFSA contribution limits are set annually by the Canada Revenue Agency (CRA) and increased from $6,500 in 2023 to $7,000 in 2024 and 2025. Contribution limits are indexed to inflation every year and then rounded to the nearest $500.
How is the TFSA contribution room determined?
Your contribution room determines the maximum amount you can contribute to a TFSA. If you were 18 or older in 2009, your contribution room increases every year, regardless of whether you have a TFSA or file an income tax return. If you turned 18 after 2009, you started earning contribution room in the year you turned 18 and your contribution room will have increased every following year. Contribution room isn’t affected by changes in the value of your TFSA investments or any income earned within your TFSA.
What is the lifetime limit for TFSA?
While there is no lifetime limit, the maximum contribution room for people who have lived in Canada their entire life, were 18 or older when TFSAs were first introduced in 2009, and who have never contributed to a TFSA could be as high as $102,000 in 2025.
How to open a TFSA?
Financial institutions offer two different ways to invest with a TFSA.
1. Managed TFSAs: These TFSAs include savings account TFSAs, GIC TFSAs, and mutual fund TFSAs with access to advice from the investment rep. Managed TFSAs can hold a range of investments but can be limited to the investments offered by the financial institution.
2. Self-Directed TFSAs: With self-directed TFSAs you can invest in stocks, bonds, mutual funds, ETFs, and other securities. You get to choose and manage qualifying investments in your account. With a self-directed TFSA, you have the flexibility to hold multiple qualifying asset types within the same account.
You need to meet certain eligibility criteria and have a social insurance number (SIN) to open a TFSA. You can learn everything you need to know about opening a TFSA by reading our how to invest with a TFSA article.
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