Nobody should be raiding their

tax-free savings account

for a frivolous reason — it’s not meant to be a slush fund. But if you’re going to pull money out strategically, the clock is ticking.

That’s because of a unique feature of the accounts that restores contribution room at the start of the calendar year following a withdrawal.

Take the money out before Dec. 31, 2025, and the room is restored on Jan. 1, 2026. Miss the cutoff, and you’ll be waiting until 2027.

“If you take it now, three weeks from now you will get that room back,” said Kevin Cork, a financial planner with The Absolute Group.

It seems like a minor nuance in the plan, but it can mean the difference in thousands in tax-free earnings over the course of a year.

Take the example of someone planning to buy a car in January. If you took $30,000 out of your TFSA in mid-January when you complete the purchase, you would have to wait until 2027 before regaining that $30,000 in room. But take it out before end of this year, and you could start rebuilding your account right after the purchase, with the loss of only a few weeks of

sheltered savings

.

The stakes only go up if you need an even larger sum for, say, a downpayment on a home.

Of course, you don’t want to intentionally leave money outside a TFSA for extended periods, but if you face a lump sum cost early in the year, it’s something to consider.

Another year-end strategy that Cork encourages is to use the account to “sculpt” how much clients put into their

Registered Retirement Savings Plans

.

The tax choreography is to withdraw from the TFSA to make an RRSP contribution now, then replenish the TFSA once your tax refund arrives.

“We set it up that way because if there is any emergency, we can pull money out of the TFSA without any consequences,” Cork said. “With the RRSP, once you are in, you are in.”

Most Canadians still have plenty of TFSA room to work with. As of 2023, nearly 19 million people had TFSAs, but only 1.5 million had maximized contributions, according to the Canada Revenue Agency.

The annual limit has risen with inflation since the program launched in 2009, and for 2025 it’s $7,000, bringing the cumulative lifetime limit to $102,000 for anyone who was at least 18 when TFSAs began. (Anyone born after 1991 hasn’t accrued the full amount yet.)

Year-end always brings a flurry of TFSA activity, said Sumaiya Bhula, a senior manager in savings and investments at Toronto-Dominion Bank. “People are looking at their investment options and their taxes,” she said. “Some people want to make sure they deposit more, and some want to take it out.”

One caveat is caution over overcontributions. Any contribution above your total available limit is taxable at one per cent per month for as long as it remains in your account. If the over-contribution is deliberate, there may be further tax consequences, according to the CRA.

There’s no penalty for not contributing, and your unused room carries forward indefinitely, but the earlier you get money inside a TFSA, the more days your gains stay sheltered. In a perfect scenario, you’d drop your $7,000 contribution in on Jan. 2, the first banking day of the year, and let compounding do its work.

The problem is, many people aren’t investing their TFSA money at all. A recent TD survey found 41 per cent of Gen Z and Millennial TFSA holders are keeping their accounts uninvested. Even parking cash in a high-interest savings account is arguably too conservative for people decades away from retirement unless they expect to use the funds soon.

“There is sometimes a misconception around a tax-free savings account,” Bhula says. “I really look at the TFSA as a growth account.”

Still, some people leave cash sitting idle, earning nothing. As the son of a long-retired accountant, that sort of thing would have earned me a stern lecture.

I may have passed that instinct along, because my younger son recently scolded me for keeping a small amount of uninvested cash in my RRSP. My defence, that I was planning to “make a trade in a few days,” got me nowhere. He delivered a quick math lesson on the returns I was forfeiting.

TFSA’s flexibility makes it especially appealing to younger investors, but some may be favouring them over RRSPs for the wrong reasons.

“If you are a certain age, you grew up with RRSPs, but young people grew up with TFSAs and have heard more about them,” said Jason Heath, a certified financial planner in Toronto.

He agrees that RRSPs are more for higher-income individuals with a long investment horizon and no immediate need for the money.

Another reason to raid your TFSA before year-end is to fund a

First Home Savings Account

. The FHSA allows contributions of up to $8,000 annually, to a maximum of $40,000, with RRSP-style deductibility and TFSA-style tax-free withdrawals for a home purchase.

“It’s like an RRSP on the way in and TFSA on the way out,” Heath said. If you’re eligible and planning to open one, pulling money from your TFSA to fund it can make sense.

The FHSA works on a calendar-year basis, and while you can carry forward room, it’s capped at $8,000. Heath said he’d prioritize the FHSA because RRSP contribution room carries forward forever.

The account is still new, and many people are figuring it out, the planner said. “Most of our clients are homeowners; it is their children who can open it,” Heath said. But for anyone planning to buy a home in the next 15 years, most 20-somethings have a reasonable chance of saving for a down payment to buy by age 35, making the FHSA a powerful tool.

The bigger challenge? Cash flow. “The average Canadian just has a hard time coming up with the money for a TFSA,” Heath said.

True. But that’s exactly why it’s worth squeezing every bit of tax efficiency out of the dollars you do have. Whether it’s optimizing TFSA withdrawals, shaping RRSP contributions, or setting up an FHSA, the year-end deadline is a useful nudge.

If you’re going to move money around, now’s the time, while 2025 still has a few weeks left on the clock.

  • ‘Why let one person in the States change your life?’ For Canadian snowbirds, the stay or go dilemma gets complicated
  • Garry Marr: Why some big Canadian investors can’t quit U.S. real estate

• Email: gmarr@postmedia.com