First – why do you think you’ve over-contributed? Is it because your account value exceeds the accrued contribution limit? Only your deposits are considered as contributions to your TFSA – not your earned returns on the money you put in.
Boring Betty and Procrastinator Paul
Let’s take the example of Boring Betty and Procrastinator Pete.
Boring Betty has been contributing the maximum since 2009, when the TFSA program started. As of this writing, Betty has contributed annually for 2009-2018, for a total of $57,500. And while Betty is indeed boring, she is a natural investor with an excellent advisor, and now has a total of $91,425 in her account – tax-free. Has she over-contributed? Definitely not!
If you’re wondering how we calculated the $91,425, you might want to try out this TFSA returns calculator. Fill in the number of years you expect to contribute (the younger you are, the more potential years you have), expected rate of return, and initial contribution, and you’ll see a *projection* of what you might earn.
Back to Procrastinator Pete, who has never yet contributed to his TFSA but just inherited a tidy sum. He happened to see Betty’s statement when she was reviewing it on the bus, and now thinks he can deposit a full $108,000. Not a chance! Paul caught the bus but missed the boat on the tax-free earnings he could have had by depositing annually. He can, however, contribute up to $57,500 on his 2018 return.
But you really have over-contributed – now what?
So. Let’s say you really have over-contributed. Now what do you do?
You have two options:
- Let your TFSA provider know (now!) how much you need to move out of your TFSA. Not because the boys in blue are about to turn up at your door with cuffs, but to minimize the fine you’ll pay. Over-contributions are subject to a 1% penalty tax per month (on the over-contribution amount only, learn more at the CRA site, here). You don’t want to pay that interest, and you don’t want to be going against regulations.
- If by any chance you have more than one TFSA account, you may have contribution room available in another account, and you can move the surplus into the second account. However, note that having two or more TFSA accounts does not in any way affect the maximum contribution room allowed.
In summary
It’s hard to believe but (as of 2015) only 10% of Canadians are maxing out their contributions to the TFSA. For anyone trying to save for anything, the TFSA should be your first port of call. So good on you for maximizing your TFSA contribution, it puts you in the top 90%.
Not to mention, no government program is ever guaranteed to return year after year – get it while the going’s good!
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.