ɫɫ��

But experts warn there are mistakes you need to avoid to steer clear of penalties. 

A common gaffe is accidentally over-contributing to your TFSA, says Jason Heath, managing director at Objective Financial Partners in ɫɫ��.

The TFSA annual limit for 2025 is $7,000. If you’ve never contributed to a TFSA before and turned 18 before 2009, you would have a maximum lifetime TFSA contribution of $102,000 as of Jan. 1, 2025.

Over-contributions are subject to a one per cent penalty for every month the excess amount remains in your TFSA.

The CRA tracks your TFSA contributions across institutions and updates your contribution limit in the first few months of every calendar year.

While the CRA had some issues with their TFSA reporting this year, Heath says the agency’s reporting is generally reliable.

“Be careful about taking withdrawals and then contributing in the same year, especially using the TFSA like a savings account,” says Heath.

When you withdraw from your TFSA, you regain your contribution room — but not until the following January.

For example, if you withdrew $1,000 from your TFSA in March 2025, that additional $1,000 in contribution room will not be applied to your TFSA until January 2026.

You can also accidentally overcontribute when transferring a TFSA from one financial institution to another, specifically by liquidating the funds and then recontributing them yourself, says Aldo Lopez-Gil, a ɫɫ��-based financial adviser with Edward Jones.

While it’s true that you can choose what you put in your TFSA — ETFs, GICs, stocks, bonds and cash — and withdraw it tax-free, there are exceptions.

For instance, U.S. stocks that pay out dividends in your TFSA are typically subject to a 15 per cent non-resident withholding tax, points out Lopez-Gil.

For investors who want to be strategic, Lopez-Gil says it’s usually more favourable to hold a U.S. stock in an RRSP, where it won’t be subject to the withholding tax.  

That said, Heath points out that the withholding tax alone isn’t a reason to exclude U.S. stocks from your TFSA.

The dividend yield for the S&P 500 is about 1.3 per cent, so a 15 per cent withholding tax amounts to a mere one-third of a per cent, he points out. “ Sometimes there’s a small cost to a potential benefit.”

One of the main advantages of a TFSA is that any interest, dividends and capital gains earned in your TFSA can grow tax-free.

Sometimes TFSAs are marketed as savings accounts, offering promotional rates to customers, points out Lopez-Gil.

“Bank-branch advisers are limited to bank-branded mutual funds, GICs or savings accounts as TFSA investments.

For this reason, people may miss out on investing the assets in the TFSAs in stocks, bonds and ETFs, which are investment vehicles that tend to have higher growth opportunity.”

At the same time, be careful about investing in an “overly speculative fashion,” says Heath. “Obviously, you want to earn high returns, and a tax-free environment is good for that. But if you’re taking risks and you lose money, that’s not good either because you don’t get that TFSA room back.”

“If you lose $10,000 in a TFSA, that $10,000 is gone forever.”