How Many TFSA Accounts Can I Have? Rules to Know

A Tax-Free Savings Account (TFSA) is a registered savings plan that has gained considerable popularity. This financial tool allows individuals to save and invest money, with the significant benefit that any investment income earned within the account, such as interest, dividends, or capital gains, is tax-free. Withdrawals from a TFSA are also not subject to taxation. A common inquiry among those considering this savings vehicle is whether they can hold more than one TFSA account.

Basic TFSA Understanding

To establish a TFSA, an individual must be a resident, possess a valid Social Insurance Number (SIN), and be at least 18 years of age. The investment options within a TFSA are broad, encompassing a range of financial products. These include cash, mutual funds, stocks, Guaranteed Investment Certificates (GICs), Exchange-Traded Funds (ETFs), and bonds.

Contribution Limits Across Multiple Accounts

Individuals are permitted to hold multiple TFSA accounts across different financial institutions. For instance, one might maintain a TFSA with a traditional bank and another with a brokerage firm.

Despite the ability to open multiple accounts, the total amount an individual can contribute across all their TFSAs in a given year, and cumulatively over time, is strictly governed by their overall TFSA contribution room. The Canada Revenue Agency (CRA) tracks an individual’s total TFSA contribution room, which includes the annual limit set by the government, any unused contribution room carried forward from previous years, and any withdrawals made in the preceding year.

For example, if the annual contribution limit is $7,000, contributing $3,500 to one TFSA and another $3,500 to a separate TFSA would fully utilize the $7,000 limit. It is the individual’s responsibility to diligently monitor their total contributions across all accounts to ensure they do not exceed their overall TFSA contribution room.

Strategies for Managing Multiple Accounts

Managing multiple TFSA accounts effectively requires careful tracking of contributions to avoid exceeding the overall limit. Individuals can monitor their TFSA contribution room by logging into their CRA My Account or by calling the Tax Information Phone Service (TIPS). These resources provide up-to-date information on available contribution room, which is updated annually by the CRA.

Individuals may choose to have multiple TFSA accounts for various reasons, such as implementing different investment strategies, accessing specific products offered by different financial institutions, or for convenience.

When making withdrawals, these amounts are added back to the contribution room in the following calendar year, regardless of which account the withdrawal originated from. Transfers between TFSAs must be handled as direct transfers between institutions to avoid being counted as new contributions. Conversely, withdrawing funds from one TFSA and then re-contributing them to another TFSA is considered a new contribution and counts against the current year’s contribution room.

What Happens If You Over-Contribute

Exceeding the overall TFSA contribution limit can lead to penalties imposed by the Canada Revenue Agency. The CRA levies a tax of 1% per month on the highest excess amount for each month the over-contribution remains in the account. This penalty applies even if the over-contribution is a small amount or only present for a few days within a month.

Upon discovering an over-contribution, immediately withdraw the excess funds to stop further penalties from accruing. The CRA typically notifies individuals of over-contributions through a Notice of Assessment or an Excess TFSA Amount letter. In some limited circumstances, it may be possible to request a waiver of the penalty if the error was due to a reasonable mistake and was rectified promptly. Individuals are responsible for filing Form RC243, Tax-Free Savings Account (TFSA) Return, to report and calculate the tax payable on excess amounts.