2026 TFSA contribution limit: What you need to know

For many Canadians, the Tax-Free Savings Account (TFSA) has become an essential component of any long-term financial plan. While there are many ways to save for long-term goals, the TFSA’s tax-free growth, annual contribution room and tax-free withdrawals make it one of the most versatile savings vehicles available. Still, that flexibility comes with a few rules you don’t want to overlook, especially when it comes to how contribution room works.

Here’s a closer look at how your contribution room builds and how to get the most from your TFSA.

Understanding TFSA contribution room

You don’t have to open a TFSA to start accumulating contribution room: that begins automatically once you turn 18, provided you’re a Canadian resident with a social insurance number. If you’re new to Canada and at least 18, your contribution room begins accumulating in the year you become a resident. While contribution room begins to accumulate at age 18, you need to be the age of majority in your province or territory of residence to open an account and make contributions.

Every January, your annual contribution limit increases, growing your available contribution room. While the TFSA room is indexed to inflation, it doesn’t climb every year, but it will increase over time. As with the past two years, the annual TFSA contribution limit is $7,000 for 2026. If you were eligible when the account launched in 2009 and you have never contributed, you would have $109,000 in available contribution room today!

How to maximize your TFSA

Despite the word “savings” in its name, a TFSA is an investment account that can hold a wide range of assets, including mutual funds, exchange-traded funds (ETFs) and other permitted investments. To get the most out of your TFSA, you may consider employing some of the following strategies:

Start early and maximize contributions: Contributing to a TFSA as soon as you’re eligible and investing as much as you can every year will help maximize the power of compound growth, where you earn income on your income. If you want to see how different contribution amounts add up over time, Fidelity’s growth calculator can help you estimate your potential.

Make consistent contributions: Whatever you decide to hold in your TFSA, making regular contributions is easier when you don’t have to think about it. When you set up pre-authorized contributions (PACs), your bank moves a set amount of money into your TFSA on a schedule of your choosing. However, be careful not to overcontribute.

Reinvest any dividends: Instead of withdrawing the income generated inside your TFSA, reinvest the dividends to help your portfolio grow more quickly.

Be strategic about withdrawals: What you hold in a TFSA matters more than you might think. That’s because the rules surrounding the contribution room get tricky when your investments change in value. Say you contribute $7,000 and the value of your investment grows to $12,000. If you withdraw it all, you’ll get the full $12,000 if your contribution room back plus the annual contribution room that gets added each year. But the reverse is also true: if your $7,000 drops to $5,000 and you withdraw the $5,000, that’s all the room you’ll get back the following year (apart from the annual contribution room added).

Invest in ETFs: An ETF makes a great addition to a TFSA, because this type of fund contains a range of investments that add instant diversification to your portfolio without requiring you to research and buy individual investments. Spreading your dollars across a greater number of assets can help you manage the risk that comes with investing in one investment that may underperform. If you’re looking for a more hands-off approach, Fidelity’s All-in-One ETFs conveniently package a diversified portfolio into a single fund.

Consider working with a financial advisor: A financial advisor can help you craft a comprehensive savings and investment strategy that leverages the benefits of a TFSA, minimizes your taxes and helps you meet your financial goals.

What are the penalties for over-contributing to a TFSA?

Ideally, you’ll want to maximize your TFSA contributions, but be careful not to overcontribute, as that can trigger penalties of 1% per month on the highest excess amount until you withdraw it.

Here are some tips to help you avoid overcontributing:

Keep track of your contribution limit: You can find your available contribution room listed in your CRA account. However, CRA My Account updates are not immediate after you make a contribution, so it’s a good idea to keep your own records.

Be mindful of when you make withdrawals: A common mistake is withdrawing money and re-contributing it in the same calendar year. Remember, when you take money out of your TFSA, that room isn’t added back until the following January. For example, if you’ve maxed out your contributions, then withdraw $5,000 in March and re-contribute it in August, you’ve over-contributed by $5,000.

Avoid indirect transfers: Another common mistake can occur if you move money from one TFSA to another or transfer your account to a different financial institution. Withdrawing funds yourself and depositing them into another TFSA counts as a qualifying withdrawal and a new contribution, which can cause you to accidentally exceed your limit. Instead, contact your financial institution to initiate a direct transfer, which will not impact your contribution room.

What should you do if you’ve maxed out your TFSA?

Maxing out your TFSA each year is a big accomplishment and doing so puts you ahead of many investors. It is also a good time to step back and consider where your next dollars can have the greatest impact based on your goals.

If saving for retirement is a priority, a Registered Retirement Savings Plan (RRSP) can be a natural next step once your TFSA is full. While a TFSA offers tax-free growth and withdrawals, an RRSP contribution can help reduce your taxable income today and allow your savings to grow tax-deferred over time. For many Canadians, using both accounts together creates flexibility: your RRSP can help fund your retirement, while your TFSA can be used strategically before or during retirement without triggering taxes. 

For first-time homebuyers, a First Home Savings Account (FHSA) may be a better place to direct new savings after maxing out a TFSA. An FHSA combines the benefits of tax-deductible contributions with tax-free withdrawals for a qualifying home purchase, making it a powerful tool for saving toward a down payment.

However, unlike the TFSA, which continues to accumulate new contribution room each year, the FHSA doesn’t begin accumulating contribution room until the account is opened. The FHSA also has an annual contribution limit of $8,000, with a lifetime limit of $40,000. Used together, these accounts can help you make meaningful progress toward homeownership and potentially build a larger overall down payment. 

Frequently Asked Questions (FAQs)