Perhaps the most common error TFSA owners make is over-contributing. The penalty for over-contributing can add up – 1% of the over-contribution for every month you’re over the limit. And to curb the penalty, you must withdraw the excess funds from the TFSA or wait for enough contribution room to be created the next year (or in later years).
Ways you can over-contribute
There are two main ways that you can over-contribute. First, you can contribute more than your annual maximum contribution which is determined by the annual maximum set by the Government of Canada as well as any extra room you may have from previous years’ carry-over.
The second way is by withdrawing from your TFSA and then re-contributing the funds in the same calendar year. When you withdraw, a recontribution in the same year is considered a fresh deposit against your contribution room. If you maximize your TFSA contributions each year, wait until the next calendar year to replace any withdrawals.