Curious whether or not you can open a second (or even a third) TFSA account in Canada?
While there is an annual contribution limit for TFSA accounts, there is no limit to the number of TFSA accounts an individual can open.
Below, I’ll talk more about how your TFSA contribution room is affected by the number of TFSA accounts you have open, discuss the pros and cons of opening multiple TFSA accounts and answer a few of the most commonly asked questions about TFSAs.
Can I Open Multiple TFSA Accounts In Canada?
The TFSA program was launched in 2009, encouraging Canadians to save more money by allowing them to take advantage of tax-free growth within tax-free savings accounts. These accounts can either be used as traditional savings accounts or as investment vehicles.
Tax-free savings accounts (TFSAs) allow Canadians to begin planning for their future by taking advantage of tax-free growth accounts. TFSA accounts are registered with the CRA, which regulates and monitors each taxpayer’s TFSA accounts to ensure their rules are followed.
These CRA’s regulatory rules on what type of investments can be held in a TFSA account and the annual contribution limits ensure that the program remains fair for all eligible participants, regardless of age or income level.
While there are a few rules that TFSA accounts must adhere to, there are no limits on how many TFSA accounts an eligible individual can open. This means that you can open as many TFSA accounts as you like.
Related Reading: Pros and cons of a TFSA account
In addition to cash savings, TFSAs can be used to hold several different investment assets, including:
- Exchange-Traded Funds (ETFs)
- Index funds
- Mutual funds
- Government bonds
TFSAs can also come in the form of high-interest savings accounts, allowing you to earn a higher-than-usual interest rate on your cash savings.
Although you can open as many TFSAs as you want, it’s not necessarily the smartest thing to do. No matter how many TFSAs you open, your annual (and total) contribution room will remain the same.
For example, the annual contribution room for 2023 is $6,500 (not including any unused contribution room from previous years).
This doesn’t mean that you can contribute $6,500 to each separate TFSA account. Rather, your TFSA contribution limit must be spread across all your TFSAs.
For example, if I have two TFSAs and contribute $4,000 to one, I would only be able to contribute up to $2,500 to the other TFSA account in 2023.
What Is The Maximum TFSA Contribution Room?
Every year since 2009 (when the TFSA program was first launched), the government has incrementally increased the total contribution room for TFSA accounts. Your TFSA contribution room begins on the year that you first became eligible for a TFSA account (Canadian resident at least 18 years old).
If you were an 18-year-old Canadian resident in 2009, then you’d be eligible for the total maximum TFSA contribution room. However, if you didn’t turn 18 until 2012, your total contribution room would be less, as your contribution room wouldn’t start until 2012.
Here’s a chart of the TFSAs historical contribution room limits and the total TFSA contribution limit:
There can be some advantages to opening multiple TFSA (Tax-Free Savings Account) accounts, but it’s important to understand the rules and potential drawbacks before doing so.
- One potential advantage of having multiple TFSA accounts is that you can separate your investments across different accounts to keep better track of them. For example, you might have one TFSA account that holds stocks and another TFSA account that is invested in fixed-income or GICs.
- It might be mandatory to open multiple TFSA accounts. For example, if you want to invest in a robo-advisor with your TFSA, you’ll have to open a separate one from your investment or savings TFSA.
- Having multiple TFSA accounts can also allow you to take advantage of different interest rates, fees, and other features different financial institutions offer. For example, you might have one TFSA account with a bank and another with a credit union, and each account might have different interest rates or fee structures.
- Another potential advantage is that CDIC insurance only covers up to $100,000 for certain accounts in case of scenarios such as a bank failure. If you have more than this in your TFSA, you might consider opening another one, so you’re covered for insurance.
That being said, it’s important to remember that your total TFSA contributions cannot exceed your allowed contribution limit, regardless of how many accounts you have.
Having multiple TFSA accounts can make it more difficult to keep track of your contributions and withdrawals. This, in turn, could result in over-contributions and penalties if you’re not careful.
There is also the hassle of having multiple accounts spread across different providers, which could also mean multiple statements, multiple online login passwords, and multiple accounts to track.
As you can probably imagine, unregulated tax-free savings accounts would be a dream come true for those seeking to avoid tax liability.
Even though contributions aren’t tax deductible, the tax-free growth aspect is quite attractive. Just imagine if a billionaire had a TFSA investment account with $100 million – that would be quite an unfair advantage compared to the average taxpayer.
Therefore, the CRA monitors TFSA accounts to ensure people follow the rules regarding contributions and withdrawals. This helps the CRA detect any potential tax evasion.
The CRA receives information about TFSA accounts from financial institutions, which must report all contributions and withdrawals to the CRA, along with a unique identification number for each account.
This helps the CRA ensure that people aren’t putting more money into their TFSA than they’re allowed to, which can result in penalties.
Additionally, the CRA can ask financial institutions for more information, like account statements and transaction history, to check that everything is above board.
If TFSA accountholders don’t follow the rules, they could face penalties (fees), and in some cases, they could even lose the tax-free status of their account.
It’s always a good idea to keep good records of your TFSA contributions and withdrawals, and if you’re ever unsure about anything, you can talk to a tax professional or contact the CRA for help. You can also try using this free TFSA limit calculator.
To finish up, here are a few quick-fire answers to some of the most commonly asked questions about TFSAs in Canada.
TFSAs can only be opened by individuals who are 18 years old and are legal residents of Canada. This means that you cannot open a TFSA for your child. Instead, consider opening an RESP account to help save for your child’s future education.
TFSA contributions are not tax-deductible. All contributions are made post-tax.
Earnings and profits realized within a TFSA account are not taxable, which is why TFSAs are such a great incentive to take advantage of.
Over-contributions are subject to a 1% fee every month that the funds are left within the TFSA account. Extreme over-contribution may warrant higher penalties and consequences from the CRA.
The leftover contribution room from previous years can be rolled over into future years. So even if you’re unable to contribute as much as you’d like one year, the leftover contribution room can be added to the next year’s annual contribution room.
Overall, there can be advantages to having multiple TFSA accounts, but it’s important to understand the rules and limitations to make sure you’re not exceeding your contribution limit or taking on more risk than you’re comfortable with.
Want to make the most of your TFSA?
Keep reading to see my list of the best TFSA rates in Canada!