In this post, you’ll learn about TFSA withdrawal rules and how to withdraw from a TFSA at many of the top banks, brokerages and robo-advisors in Canada.
TFSA Withdrawal Rules
Unlike an RRSP, there are very few rules when it comes to TFSA Withdrawals. If you’re withdrawing from an RRSP before retirement, you’ll have to deal with some forms and tax slips at the end of the year.
Things are much easier with TFSAs. You won’t have to complete any special forms outside of the ones from your bank, and there will be nothing to report on your Income Tax return when you file your taxes.
This is because any income earned in a TFSA – dividends, interest income or capital gains – are completely tax-free.
But there are a few TFSA withdrawals rules you should be aware of:
- You don’t loose your contribution room when you make withdrawals
- TFSA withdrawals will NOT offset any contributions you’ve made in the year
- You may re-contribute any amount withdrawn in the current year if you still have unused TFSA contributions room. Otherwise, you must wait till the following year
We’ll get into how TFSA withdrawals affect your contribution room in the next section.
TFSA Withdrawals And Your Contribution Room
One of the great things about a TFSA is that you don’t loose your contribution room when you make withdrawals.
But you’ll have to wait till January 1st of the following year for the withdrawals to be added to your annual contribution room.
That means you can always return any amount you withdraw from a TFSA, and as long as you follow the rules, you should be fine.
Here is an example to illustrate how withdrawals affect your contribution room:
Sam started 2023 with a TFSA contribution room of $8,000. He contributed $5,000 to his TFSA in February, dropping his contribution room to $3,000.
In June, he made a withdrawal of $4,000 to deal with an emergency. And by September, he received a $7,000 bonus and contributed the whole amount to his account.
Sam has over-contributed to his TFSA by $4,000 and will be on the hook for a 1% penalty tax starting September until he withdraws the excess or the 2024 dollar limit of $7,000 eliminates the over-contribution.
To avoid this situation, he should have contributed only $3,000: his starting contribution room of $8,000 minus the $5,000 contribution in February.
Then wait till January 2024 when the withdrawals from 2024 will be added to his contribution room:
|2024 TFSA Dollar Limit
|Sam’s withdrawal in 2023
|2024 TFSA Contribution Room (Starting Jan 1st)
The annual TFSA contribution room is the sum of the following:
- Annual TFSA dollar limit ($7,000 for every eligible Canadian in 2024)
- Unused TFSA contribution room from the previous year
- Withdrawals made in the previous year
If you’re not sure of what your TFSA contribution room is, you can always log into your account with CRA.
You can download the TFSA contribution tracker here to monitor your contributions and avoid TFSA penalties.
TFSA Withdrawal Fees
There may be fees to withdraw from your TFSA, but in general many financial institutions will let you withdraw for free.
For example, it is free at Scotiabank, RBC and the online brokerages and robo-advisors (depending on the withdrawal types).
If you don’t have enough cash in your TFSA account, you may need to sell some of your investment to raise the cash and incur some brokerage fees.
Finally, doing a direct transfer of your TFSA to another bank will usually cost you, though the destination financial institution may cover the fees in some instances. Questrade covers transfer fees up to $150 for instance.
TFSA Withdrawal Penalty and Tax
You can make withdrawals from your TFSA at any time without a penalty or tax implication. Like I mentioned earlier, this is one of the differences between RRSPs and TFSAs.
There are no limits to the amount you can take out and the withdrawal can be for any reason such as dealing with an emergency, paying off a debt, funding a big purchase and so on.
Related Post: RRSP Over-contribution: Penalty & How To Fix Them
How to Withdraw from TFSA
Once you decide on the amount to withdraw, ensure you have enough cash in your account for the withdrawal.
This may mean selling some of your investments to have enough cash if you have a self-directed TFSA account.
So here are the steps to withdrawing from a TFSA at some of the popular financial institutions in Canada
How to Withdraw from Questrade TFSA
For self-directed accounts:
- Log in to your Questrade account then click on “Withdraw Funds” from the Quick links section of the main page.
- Select your TFSA account from the page that comes up.
- You’ll be presented with a summary of your cash balances in CAD and the USD equivalent.
- Choose the currency you want to withdraw: CAD or USD
- Enter the withdrawal amount.
- Pick one of the withdrawal methods (see the available options below)
- Provide your bank details
- Then confirm the withdrawal
If you need to withdraw a higher amount than what you have in a currency, Questrade will do a conversion from the other currency.
For example: if you have C$1,000 and USD500 but need to withdraw C$1,200, Questrade will convert some of the USD to fund the C$200 shortfall.
The 3 withdrawal methods and the fees for withdrawing from Questrade TFSA are:
|Electronic Funds Transfer
|Wire Transfer (CAD)
|Wire Transfer (USD)
Your request will take between 1 to 3 days to be processed by Questrade, but your bank may also need some additional time to credit your account.
To withdraw your TFSA from Questwealth Portfolio, you can either initiate the withdrawal from your account or contact their customer service to process it.
It may take up to 5 days for the withdrawal to be processed.
Learn more about how to withdraw from Questrade here.
How to Withdraw from Wealthsimple TFSA
Follow these steps to withdraw from your Wealthsimple Invest TFSA
- Log into your Wealthsimple account
- Select Funding, then Withdraw funds from your profile
- Choose the account you wish to withdraw from
- Enter the amount
- Provide your banking details
- Confirm the withdrawal by clicking Set withdrawal
To fund your withdrawal, Wealthsimple will need to liquidate some of your investments and this can take up to 3 business days.
So from the time you made a request to withdraw from your Wealthsimple Invest TFSA to the time you get the funds in your bank account may take up to 6 business days.
How to Withdraw from Wealthsimple Trade TFSA
These are the steps to withdraw from your Wealthsimple Trade TFSA
- Click on the profile icon (top left side of the app)
- Select Funding then Withdraw funds
- Choose your TFSA account from the list of accounts. You’ll be presented the amount that is available to withdraw.
- Enter the amount to withdraw
- Provide your banking details: Pick one of the already linked bank accounts or connect a new bank account
- Confirm your withdrawal details and submit.
There are no fees to withdraw from your Wealthsimple Trade TFSA. The withdrawal will usually take 1-2 business days to process, but up to 5 business days in some cases.
How to Withdraw from RBC TFSA
To withdraw from your RBC Royal Bank TFSA, follow these steps:
- Login to your internet banking profile on RBC.
- Click on your TFSA account under the Investment section of your account summary.
- Select Withdraw Investments on the left side of the screen.
- Select the TFSA account you wish to withdraw from
- Enter the amount to withdraw (all the available balance or a lower amount)
- Select the RBC account to move the funds to
- Click “continue” to proceed to the next step
- Provide an email or mobile number on the next page
- Verify the transaction details and confirm the withdrawal
For TFSA held at RBC Direct Investing, you can make a withdrawal by using the “funds transfer” option to move funds to your RBC Royal Bank Account.
RBC TFSA withdrawals are free.
How to Withdraw from TD TFSA
Withdrawing from your TFSA at TD will vary depending on the type of account your own: an high-interest savings account at TD Canada Trust, TD Mutual funds TFSA, TFSA at TD Direct Investing, or GICs and Term deposits at Canada Trust
To withdraw at TD Canada Trust: Login to your internet banking account (EasyWeb) and follow the instructions to withdraw from your TD Tax-free Savings account to your chequing account.
For TD WebBroker TFSA:
- Login to your WebBroker account and go to Accounts
- Select Cash Transfer under the Self Service section
- Provide the withdrawal details: Amount and the account to transfer to
- Review the details and confirm the transaction
TFSA Withdrawals from your TFSA on TD GoalAssist can also be completed via the app.
How to Withdraw from Scotiabank TFSA
These are the steps to withdraw from your Scotiabank TFSA:
- Login to your Scotiabank Internet banking
- Select TFSA from the Accounts page
- Click on Account Details and select TFSA Withdrawal
- Choose the account you’d like to transfer the money to
- Provide the withdrawal amount
- Confirm the withdrawal by clicking on Continue
There are no withdrawal fees for Scotiabank TFSAs.
For Scotia iTRADE TFSA, go to Transfers once you’re logged in and select Registered Withdrawals. Follow the instructions and feel free to contact them if you have any questions.
How to Withdraw from BMO TFSA
BMO offers several TFSA accounts across different products and services like BMO Self-Directed, adviceDirect and SmartFolio.
So withdrawing from your TFSA will vary depending on where you opened your account. But you can always login to your account or speak with your financial advisor to process the withdrawal.
How to Withdraw from CIBC TFSA
You can withdraw from your CIBC TFSA in a few easy steps.
- Once you’re logged into internet banking, navigate to the “Quick Transfer” section on the right side of the screen.
- Select your TFSA account from the dropdown list under “From”
- Choose the destination account under “To”
- Enter the withdrawal amount
- Click on next
- Proceed additional details such as date and confirm the transaction
Unless you’re transferring your TFSA to another bank that comes with a $100 transfer fee, there are no fees when you withdraw from your CIBC TFSA.
How to Withdraw from Tangerine TFSA
The withdrawal instructions depend on the type of TSFA you have at Tangerine: Tax-Free Investment Fund Account, Tax-Free Guaranteed Investment (GIC) or Tax-Free Savings Account.
Once logged into your account, simply follow the instructions to withdraws funds or initiate a chat with their customer service if you need help.
The withdrawal fees for Tangerine TFSA is $0 but a $50 fee will apply for direct transfers of your TFSA to other financial institutions.
Transfer TFSA Between Institutions
If you need to transfer your TFSA between banks, there is a right way and a wrong way of going about it.
What’s the wrong way?
Simply selling your investments and taking out the cash from one bank and making a deposit to the other financial institution. Depending on your available TFSA contribution room, this may result in an over-contribution.
So what’s the right approach?
The correct way is to request for a direct transfer from your current financial institution to the new one. That way, your contribution room will be unaffected.
There may be a few basic forms to fill, but it should be nothing serious.
You should be ready to pay between $50 and $100 as transfer fees depending on the bank or brokerage.
Related Post: How To Transfer TFSA to Questrade
Alternatives to TFSA Withdrawal
The TFSA withdrawal rules are flexible and designed to make it easy to withdraw money whenever you need it and for whatever reason. But the flexibility can also come at a cost.
To maximize the tax advantages of a TFSA, you want to hold the investments for longer periods and allow them to compound and grow on a tax-free basis.
Using your TFSA like any other savings or current account is not the best use of its tax advantage.
As much as possible, you should use your TFSA contribution room to save and invest for longer term goals.
Depending on your financial situation, some of the following may be alternatives to TFSA withdrawals:
- Emergency fund
- Credit Card
- Line of Credit/HELOC
Related Post: Emergency Fund: The Benefits And Tips To Build One Fast
TFSA Withdrawal Reasons
According to the 2019 RBC Financial Independence in Retirement Poll, the top 3 reasons why people withdraw from their TFSA are
- Paying off debt
- Making large purchases
- Dealing with emergencies
Taking money out of your TFSA to settle a debt may be prudent especially where the interest rate on the debt is higher than the rate of return on your investments.
The other reasons are: paying for day-to-day expenses, buying a home and purchasing something for a home.
There are no penalties for withdrawing from a TFSA. You won’t have to pay a withholding tax like you would with an RRSP withdrawal before retirement. However, there could be some withdrawal fees depending on your bank and the withdrawal type you choose.
TFSAs are very flexible when it comes to withdrawing your money. There are very few rules unlike TFSA. You can withdraw any time you like without a limit and you don’t lose the contribution room. But you have to wait till the following year to get the contribution room back and re-contribute the money.
No! As the name suggests, both your original contribution and any gains you make in a TFSA are tax-free. You can withdraw anytime from your TFSA investment account without worrying about a tax liability.
The specific instructions will vary depending on your financial institution. But it’s usually very simple, straightforward and can be done from inside your account without having to fill any complicated forms.
With fewer rules, TFSAs are more accessible and easier to withdraw from than RRSPs.
But you should understand the little TFSA withdrawal rules to avoid making costly TFSA mistakes.
Hopefully, you know how to withdraw from a TFSA now and the important rules. You can check the links below for more posts about TFSAs.