A TFSA Tax Trap to Avoid

Consider your TFSA a special, registered tax-sheltered investment vehicle with some lucrative tax benefits, not an everyday account for spending money.

Take care not to contribute, withdraw, and recontribute to your TFSA in the same year. If you do, you may accidentally over-contribute for a given year, and that means tax penalties. Elenathewise/Fotolia

You may contribute up to the annual maximum in a Tax-Free Savings Account (TFSA) until Dec. 31 each year.

There is no “grace” period of 60 days into the New Year to make contributions for the year, as there is with RRSPs. So that gets a lot of people wondering about TFSA contributions and withdrawals in the same year. And it’s here that many people run afoul of the rules for TFSAs, with consequent surprise tax penalties you may be unaware of.