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TFSA Rules

The True Cost of TFSA Over-Contributions (With Examples)

Learn exactly what happens when you exceed your TFSA limits. We break down the 40% penalty with real calculations and show you how to avoid this costly mistake.

4 min read•1 February 2026

The 40% Penalty Explained

SARS takes TFSA over-contributions seriously. If you contribute more than your allowed limits, you face a 40% penalty tax on any returns earned from the excess amount.

This isn't a once-off fine — it's an ongoing penalty that applies for as long as the over-contribution remains in your TFSA.

Understanding the Two Limits

Before we dive into penalties, let's clarify the two limits you must track:

Annual Limit: R36,000

  • Resets every tax year (1 March to 28 February)
  • Cannot be carried forward if unused
  • Applies to contributions only, not growth

Lifetime Limit: R500,000

  • Never resets, even if you withdraw
  • Total of all contributions ever made
  • Once reached, you can never contribute again

Real Penalty Calculations

Example 1: Exceeding the Annual Limit

Scenario: Sarah contributes R40,000 in one tax year (R4,000 over the R36,000 limit).

Her R4,000 over-contribution earns 10% return = R400

Penalty: R400 × 40% = R160 penalty tax

If she doesn't withdraw the excess, this penalty applies every year on the growth.

Example 2: Exceeding the Lifetime Limit

Scenario: John has contributed R498,000 over the years. He contributes another R36,000, putting him R34,000 over the lifetime limit.

His R34,000 over-contribution earns 10% return = R3,400

Penalty: R3,400 × 40% = R1,360 penalty tax per year

Example 3: The Compounding Disaster

Scenario: Mike over-contributes by R50,000 and doesn't realize for 5 years.

| Year | Over-Contribution | Growth (10%) | 40% Penalty | |------|------------------|--------------|-------------| | 1 | R50,000 | R5,000 | R2,000 | | 2 | R55,000 | R5,500 | R2,200 | | 3 | R60,500 | R6,050 | R2,420 | | 4 | R66,550 | R6,655 | R2,662 | | 5 | R73,205 | R7,321 | R2,928 |

Total penalties over 5 years: R12,210

Plus he still owes tax on the R23,205 growth from the over-contribution.

How Over-Contributions Happen

Most over-contributions are accidental:

  1. Multiple TFSAs: Contributing R36,000 to two different TFSAs
  2. Forgetting withdrawals count: Withdrawing R10,000 then "replacing" it
  3. Miscounting the tax year: Contributing in February and March
  4. Losing track of lifetime total: Not keeping records over many years
  5. Employer contributions: Some employers contribute to TFSAs — these count toward your limit

What To Do If You've Over-Contributed

Step 1: Calculate the Excess

Determine exactly how much you've over-contributed and when.

Step 2: Withdraw the Excess

Remove the over-contributed amount as soon as possible to stop accumulating penalties.

Step 3: Report to SARS

TFSA providers report to SARS automatically. You may receive a penalty assessment.

Step 4: Pay the Penalty

The penalty will be included in your tax assessment. You cannot avoid it, but early correction minimizes the damage.

The Withdrawal Trap

Here's where many people get confused:

> Withdrawals do NOT restore your contribution limits

If you've contributed R500,000 (lifetime limit) and withdraw R100,000, you cannot contribute another R100,000. Your lifetime limit is permanently used.

This means:

  • Withdrawing R50,000 doesn't give you R50,000 of "space"
  • You cannot use your TFSA as a revolving fund
  • Every rand contributed counts forever

How to Protect Yourself

1. Track Every Contribution

Use our Contribution Tracker or keep a spreadsheet with:
  • Date of each contribution
  • Amount contributed
  • Running annual total
  • Running lifetime total

2. Set Up One TFSA Only

Having multiple TFSAs increases the risk of over-contributing. Consolidate if possible.

3. Automate Below the Limit

Set up a debit order of R3,000/month (R36,000/year) to automatically stay within limits.

4. Check Before Large Contributions

Before making lump sum contributions, verify:
  • Your annual contribution so far
  • Your lifetime contribution total
  • Days remaining in the tax year

5. Keep Records Forever

SARS can query contributions from years ago. Keep records of all TFSA statements.

The Silver Lining

Growth on your legitimate contributions remains 100% tax-free. Even if you've over-contributed, only the excess portion is penalized — your valid contributions continue growing tax-free.

Key Takeaways

  • The penalty is 40% of growth on over-contributed amounts
  • Both annual (R36,000) and lifetime (R500,000) limits apply
  • Withdrawals never restore contribution room
  • Track contributions carefully to avoid accidental penalties
  • If you've over-contributed, withdraw the excess immediately

Use Our Tools

  • Contribution Tracker: Monitor your annual and lifetime contributions
  • Growth Calculator: See how your valid contributions will grow tax-free
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