The Tax-free Savings Account’s (TFSA) withdrawal provisions are ideal when you need to tap your savings, as many of us were reminded during the COVID-19 pandemic. The good news is that they also allow us to put money back in easily. But keep the rules in mind or face the tax consequences.

TFSAs are a useful savings vehicle: Any amount contributed as well as any income earned in the account, such as interest income or capital gains, is generally tax-free, even when it is withdrawn. Plus, there are no restrictions on the amount or the timing of your withdrawals.

Even better, when you withdraw funds from your TFSA, you do not lose your contribution room and you can put that money back in. But there are rules regarding re-contributions. Generally, the rule is that the amount of your withdrawal from your TFSA will be added back to your TSFA contribution room the following year. If you want to replace the money you withdrew, you’ll need to wait for the new year. The exception is that if you have unused contribution room from previous years, you can replace that money sooner as long as you stay within your available contribution room.