Putting Money Back in Your TFSA Can Cost You 1% a Month

Take $5,000 out of your TFSA in July and put it back in October, and you may have just committed a taxable over-contribution — with money that was yours, in an account designed for exactly this kind of flexibility.

Canada's two main registered accounts both have timing rules that run against intuition. Neither sends you a warning. One of them charges you monthly for getting it wrong.

Why does putting money back into a TFSA cause a problem?

Because a withdrawal does not hand the room back to you straight away. The Canada Revenue Agency is unambiguous: "When you take money out of your tax-free savings account (TFSA), it does not immediately create new available contribution room."

And the timing is fixed rather than approximate: "The amount you withdraw will only be added back as available contribution room on January 1 of the next calendar year."

So for the rest of the year that money is in limbo. You have it in your bank account, you have obviously not gained anything, and yet the space it used to occupy is not available again until New Year's Day. Putting it back before then only works if you had unused room already sitting there.

The reason this trips so many people is structural: the account is marketed on flexibility, and withdrawals genuinely are flexible. It is the re-contribution that is time-locked, and nothing about taking the money out signals that.

What does getting it wrong actually cost?

One per cent a month, and intent is irrelevant. CRA states that "Any over-contribution you make to your TFSA, even in error, is taxable" — and the excess is taxed "at a rate of 1% per month for as long as the excess amount remains in your account."

Read the two halves together. "Even in error" removes any argument about not having understood. "For as long as the excess amount remains" means the meter runs until you take the money out, so the cost is set by how long it takes you to notice.

That last part matters most. This is not a fine of fixed size — it is one that grows while you are unaware of it, which is exactly the failure mode a reminder addresses.

When is the RRSP deadline, really?

Not 31 December. The RRSP contribution deadline for a tax year falls in the following year, at the start of March. CRA's own statement of it, for the most recent completed year: "March 2, 2026 is the deadline for contributing to an RRSP for the 2025 tax year."

That is genuinely useful timing. When you are doing your taxes and discover you owe more than expected, there may still be a window open to contribute and deduct for the year you are filing about. Almost no other tax decision works retrospectively like that.

The exact date moves with the calendar, so check the current year's rather than assuming it repeats. What does not move is the shape: early March, not the end of December — and treating it as a New Year's Eve cut-off means giving up two months you were entitled to.

Is there a penalty for over-contributing to an RRSP too?

Yes, with a buffer the TFSA does not give you. Excess contributions are those above "your RRSP deduction limit... plus $2,000", and the tax is "1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000." CRA notes the cushion is conditional on having been 18 or older, with the wording tied to the relevant tax year.

So the RRSP forgives a small honest overshoot and the TFSA does not. People assume the two accounts behave alike; on this they are opposites.

The deadline you get exactly once

"December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP."

Not your 71st birthday. 31 December of that calendar year — so someone born in February gets ten extra months, and someone born in December gets almost none. Either way it is the last contribution you will ever make to your own RRSP.

This is a once-in-a-lifetime date arriving decades after you opened the account, at an age when you are unlikely to be tracking contribution mechanics closely. It deserves to be written down the moment you read this, not remembered.

Which reminders are worth setting?

Four, and the first one prevents the expensive mistake:

• The day you withdraw from a TFSA, a reminder for 1 January telling you the room is back. Put the amount in the reminder text. This is the whole fix: it converts an invisible time-lock into a date you can see.
• Mid-February, every year, for the RRSP contribution deadline. A couple of weeks of margin before a date that sits in early March, with time to move money if a transfer is slow.
• Early January, every year, to check your current contribution room. CRA publishes it, and both penalties above are for exceeding a number you are entitled to look up.
• Once, for 31 December of the year you turn 71 — or your parent's, if you are the one who keeps track of these things.

In ReminderIt you can set these by message — "remind me on 1 January that my TFSA room is back" — and it reads the date back before saving. The first and last suit one-offs; the February and January ones are annual recurring.

What this page is not

Tax or investment advice, and not a statement of your limits. Contribution room is personal, the annual TFSA dollar limit is indexed, and the RRSP deduction limit depends on your income and history. CRA publishes your actual numbers in your account and on your notice of assessment — those are authoritative and an article is not.

If you have already over-contributed, that is a conversation for CRA or an accountant now rather than later, because both penalties are priced per month.

What the rules do tell you plainly is that neither account behaves the way its marketing implies. TFSA room comes back on a fixed date, not when you need it. The RRSP year ends in March. And one day in your seventy-first year, the door closes for good.

Sources: Canada Revenue Agency (canada.ca) — Withdrawing from a TFSA (a withdrawal does not immediately create room; it is added back on 1 January of the next calendar year; over-contributions taxable even in error at 1% per month while the excess remains), Important dates for RRSPs, HBP, LLP, FHSAs and more (the 2 March 2026 deadline for the 2025 tax year, and 31 December of the year you turn 71) and Excess Contributions (the $2,000 buffer and 1% per month).