The Tax-Free Savings Account (TFSA) contribution limit has increased to $7,000 in 2025. Every year, the TFSA contribution limit is indexed to inflation and rounded to the nearest $500. For eligible Canadians who have never contributed to the TFSA since 2009, the total cumulative contribution room has increased to $102,000 by 2025.
Despite this valuable opportunity, many Canadians make costly mistakes undermining their tax-free savings potential. Here are three TFSA mistakes Canadian investors should avoid in 2025.
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Holding too much cash in a TFSA
Nearly half of TFSA holders keep their savings in cash, missing significant growth opportunities. While cash provides security, holding investments like stocks, bonds, exchange-traded funds (ETFs), or mutual funds within a TFSA can generate substantially higher returns over time, all completely tax-free.
Over-contributing to your TFSA
Over-contribution remains a serious concern for 2025. Exceeding the $7,000 limit or your available contribution room triggers a harsh 1% monthly penalty on the excess amount. Unlike RRSPs (Registered Retirement Savings Plans), TFSAs offer no grace buffer, and penalties apply from the first excess dollar. The Canada Revenue Agency monitors contributions closely and will send notices demanding immediate withdrawal of excess amounts.
For example, over-contributing by $2,100 in October and leaving it uncorrected through December would result in $63 in penalties. The key is withdrawing excess contributions immediately upon discovery.
Misunderstanding withdrawal and re-contribution rules
The third mistake involves misunderstanding withdrawal rules. Money withdrawn from a TFSA cannot be re-contributed in the same calendar year without triggering over-contribution penalties. Withdrawn amounts only restore contribution room at the beginning of the following year.
Proper TFSA management requires understanding these rules, investing for growth rather than holding cash, and carefully tracking contribution limits to maximize this powerful tax-free savings vehicle.
Consider holding quality growth stocks in the TFSA
While several Canadians hold cash in the TFSA, the tax-sheltered status of the registered account makes it ideal to hold quality growth stocks such as goeasy (TSX:GSY). An investment of $1,000 in goeasy stock back in 2009 would be worth $17,000 today. The cumulative returns are closer to $27,000 if we adjust for dividend reinvestments.
Valued at a market cap of $2.4 billion, goeasy provides non-prime leasing and lending services to Canadian consumers. It offers unsecured and secured installment loans, home equity and improvements, automotive vehicle financing, and more.
Despite its outsized gains, the TSX stock trades 30% below all-time highs, allowing you to buy the dip and benefit from a forward dividend yield of 3.1%.
goeasy has increased revenue from $347.5 million in 2016 to $1.52 billion in 2024. Analysts expect revenue to grow at a compounded annual growth rate of 10.5% over the next three years. Comparatively, adjusted earnings are forecast to expand from $16.7 in 2024 to $25.6 in 2027.
goeasy stock trades at a forward price-to-earnings ratio of 7.9 times, below its 10-year historical average of 9.8 times. If GSY stock is priced at nine times forward earnings, it will trade around $240 per share in early 2027, above the current trading price of $151.
Given consensus price targets, analysts remain bullish on the TSX dividend stock and expect it to gain over 40% in the next 12 months.
