How Many TFSA Accounts Can You Have? A Tax-Free Savings Guide

As the saying goes, “with great power comes great responsibility.” This is especially true when it comes to a Tax-Free Savings Account (TFSA) which offers Canadians a unique opportunity to save money without having to worry about taxes. But with that freedom come stringent rules and regulations you should remember. 

And how many TFSA accounts can you have? Is it just the one? And how does a TFSA withdrawal work? Stick around to find out!

Can I Open Two TFSA Accounts?

So, can you have more than one TFSA? Luckily, yes!

In fact, the Canada Revenue Agency (CRA) allows each Canadian to open multiple TFSA accounts. However, that doesn’t mean you can contribute more money, as you still have to pay mind to the TFSA contribution limit for each calendar year. Here’s what you should remember:

Contributions are limited

If you’ve ever had an account, you know that there’s a maximum contribution limit to a TFSA, which is called the contribution room or contribution limit. Each year, the annual contribution changes. For example, the TFSA contribution room for 2021 was $6,000, which is also the case for 2022, while in the year of the account’s conception, 2009, the limit was $5,000. 

Since there is a contribution limit, you will be charged a penalty fee for an over-contribution. The TFSA over-contribution penalty is a tax equal to 1% of the highest excess amount in a month, for each month the amount stays in the account.

Contributions are per individual

Since all accounts are in your name, they’re considered a package deal. The reason for this is that the CRA doesn’t want everyone to open multiple accounts and not pay taxes on investment returns. Therefore, all contributions are individual regardless of the number of accounts owned. 

So, if you have two accounts and add the TFSA max contribution of $6,000 to each, you would’ve over-contributed and would be subject to a penalty. Instead, to avoid cuts to your funds, you should contribute $3,000 to one and $3,000 to the other account. That way, you’ll still reap the benefit of more than one savings account without facing needless consequences. 

Possibility of more fees

Depending on the institution, there might be some additional set-up, management, or investment fees when you open a new tax-free savings account. For example, let’s look at the management fees from WealthSimple and Questrade. At WealthSimple, accounts are subject to 0.50% management fees, while at Questrade it’s 0.25%. 

However, if your balance or deposits increase, you can bypass a big chunk of these fees. 

Do I Need Multiple TFSA Accounts?

Now that you know you have the possibility to open more than one TFSA account, the question remains – do you even need to? Some do, while others settle on a different kind of account – an RRSP or an RESP. 

Although there’s no definitive answer, there are some things you should keep in mind to help you decide.

Different savings goals

A key reason Canadians opt for multiple accounts is to save for different purposes. And with the TFSA limit, some goals may become harder to reach. So, if you want to save for a down payment on a house, a rainy day fund, and retirement, you can earmark each account for a specific objective. Therefore, you’re less likely to dip into savings meant for something else. 

Investing in a product that is unavailable

Some people open several accounts because they want to invest in a product that’s unavailable within their current one. 

For example, let’s say you have a TFSA with a bank that only offers savings accounts. Down the line, you come across an investment opportunity, like ETFs, that you want to seize. In this case, you’ll need to open a TFSA with a different financial institution that offers the investment product you’re seeking. 

Tips for Managing Multiple TFSA Accounts

Regardless of the advantages of multiple tax-free savings accounts, some people might find them difficult to manage. For this reason, I’ve compiled a list of helpful management strategies:

Close your old accounts

If you have several TFSA accounts that you don’t use often, think about consolidating them into one to save on fees and make tracking your contributions easier.  What’s more, you can also transfer your funds between TFSAs without tax implications!

Use a contribution tracker

One way to keep on top of your account and ensure you’re not exceeding the TFSA contribution limit is to take advantage of the influx of handy contribution tracker apps. These apps allow you to see how much contribution room you have left and track your input and withdrawals. 

Start with a plan

When opening a new account, it’s crucial to start with a plan, i.e. knowing how much you want to contribute during the year and how you’ll use your account. By hatching a plan, you can assure your TFSA aligns with your overall financial goals and is sensitive to income variations. 

Be intentional with your accounts

It can be tempting to open a new account just because you can, but it’s essential to be intentional with your plans. Therefore, ask yourself if having another account is really the best path toward your goals. If not, it might be better to stick with the TFSA you already have. 

Additionally, you shouldn’t put money into your TFSA randomly. Instead, pool all similar investments, like all individual stocks, in one brokerage and keep others in another. 

What Happens When You Withdraw From TFSA?

I’ve covered all there is to know about contributing to your account. But what about taking money out of a TFSA? Before I go over the paramount TFSA rules, let’s talk a bit about this account in general. 

TFSA 101

The TFSA is a tax-free savings account that allows you to save and invest your money without being taxed on the growth. With this, it offers a great way to save for short-term and long-term goals and provides flexibility with your money. TFSA contributions are not tax-deductible, so the amount inside is tax-free, even upon withdrawal. 

Besides using your TFSA as a savings or investment account, you can also turn it into an emergency fund, even though it’s not usually used as a last resort. 

Finally, you should know that you can also list either a beneficiary or a successor on your account. If you want a beneficiary, you can list anyone, even your estate. However, if you want a successor, you can only name a spouse or a common-law partner. 

TFSA withdrawal rules

Withdrawing from a TFSA has its own set of rules. The first thing you need to know is that you can withdraw from your account at any time and for any reason, as there are no restrictions on how you use your money since it isn’t taxable income. 

Moreover, because of the lack of a TFSA withdrawal limit, you can take out as much money as you want without impacting benefits like Employment Insurance, GST Credit, or Old Age Security. But, if you withdraw, you’ll have to wait until the next calendar year for a re-contribution of that amount back into the account as an addition to the annual contribution limit. 

TFSA re-contribution rules state that if you withdraw a certain amount, for example, $500 in 2022, you wouldn’t be able to re-contribute that $500 back until 2023.

To end on a high note, there are no TFSA withdrawal fees or penalties for withdrawing from your account. The only fee you might incur is from the financial institution that holds your account. However, if you withdraw and then re-contribute it within the same calendar year, you will be subject to over-contribution fees.

Conclusion

Obviously, the TFSA is a great savings tool that serves a variety of purposes. And now that you know the answer to the coveted question – “How many TFSA accounts can you have?”, you understand how the rules work and how you can manage multiple accounts. By following these tips, you can ensure you’re making the most out of your TFSAs.