How To Buy US Stocks In A TFSA: 10 Simple Steps (2024)

Do you have a TFSA and want to learn how to buy US stocks in a TFSA? If so, then this post is for you.

Buying US stocks in your TFSA is relatively simple and can be done through a self-managed TFSA or by working with a financial advisor. That being said, there are certain tax implications to be aware of, which could cut into your profits.

Here’s an overview of the steps to purchase US Stocks in your TFSA, which we’ll go into more detail below.

  1. Choose a trading platform that allows trading in US stocks within a TFSA.
  2. Open a TFSA account with a Canadian financial institution.
  3. Complete the required paperwork, including providing your SIN and signing a W-8BEN form.
  4. Fund your TFSA, keeping in mind your annual contribution limit.
  5. Research US stocks to make informed investment decisions.
  6. Convert Canadian dollars (CAD) to US dollars (USD) to trade US stocks.
  7. Place your trade for US stocks within your TFSA.
  8. Monitor your investments and rebalance your portfolio as necessary.
  9. Be aware of tax implications, including the withholding tax on dividends from US stocks.
  10. Stay informed about news, trends, and regulations related to TFSAs and US stocks.

How To Buy US Stocks In A TFSA

Step 1: Choose a Trading Platform

Many financial institutions offer trading platforms that allow you to buy and sell stocks, including US stocks. Ensure that the platform you choose allows trading in US stocks within a TFSA.

Many people choose the same institution that they use for banking, but to save the most money on trading fees, I recommend using a discount broker such as Questrade, which offers a free US Dollar account.

Related Reading: Best trading platforms in Canada

Step 2: Open a TFSA Account

After you choose your platform, you must open a TFSA account within that platform, whether it is with a bank, credit union, or discount broker. Ensure that the institution you choose allows trading in US stocks. I personally use the discount broker noted in step 1 above to trade US stocks in my TFSA.

Step 3: Complete the Required Paperwork

You’ll need to provide personal information, including your Social Insurance Number (SIN), and fill out any required forms to open the account. You may also need to sign a W-8BEN form, which confirms your non-US status for tax purposes.

Step 4: Fund Your TFSA

Deposit money into your TFSA account via electronic funds transfer, cheque, or direct deposit. Be aware of your annual contribution limit, which is set by the Canadian government. Here is updated information on the current TFSA limits for Canadians, but be aware yours might be different depending on how many years you qualify for.

Related Reading: TFSA Limit Calculator

Step 5: Research US Stocks

Before purchasing any stocks, research the companies you’re interested in and consider their financial health, industry trends, and future growth potential. Keep in mind that investing in individual stocks generally carries a higher risk compared to investing in diversified exchange-traded funds (ETFs) or mutual funds.

Related Reading: Best Stocks for Your TFSA

Step 6: Convert Currency

Since you’ll be buying US stocks, you’ll need to convert your Canadian dollars (CAD) to US dollars (USD). Some brokerages will convert the currency automatically, while others may require you to do it manually. Be aware of any conversion fees charged by your financial institution.

Step 7: Place Your Trade

Once you’ve chosen the US stocks you’d like to purchase, log into your trading platform and place your trade. Make sure that you’re trading within your TFSA to maintain the tax-free benefits. You’ll need to provide the stock’s ticker symbol, the number of shares you want to buy, and the type of order (e.g., market or limit order).

Market Orders

The most basic type of order is the market order. The market order is executed immediately once you have inputted your stock information and clicked buy. Market orders have a large drawback: bid-ask spreads.

A stock’s bid-ask spread is what buyers and sellers are willing to sell at. Each price has a specific amount of supply or demand within a stock exchange’s book. Smaller stocks and more illiquid stocks tend to have a wider bid-ask spread.

When placing a market order, you have control of when a trade is executed, but not over what price it is executed at.

Limit Orders

Limit orders are the opposite of market orders. When you place a limit order, you can control what price to buy a stock at, but not when the stock will actually be bought.

Limit orders are typically open until your shares are entirely purchased or a specific length of time has passed.

Your limit order can be placed at any price. If you place a limit order to buy a stock for more than it is currently trading at, you will likely be filled immediately at the lowest possible price.

Alternatively, if you place a limit order to buy a stock at a price below its current market value, you will have to wait until the stock price reaches or drops below your inputted price.

I strongly recommend using limit orders early on in your investing journey. Placing a limit order around the current market price will allow you to know exactly how much you will be investing in each stock.

Keep in mind that limit orders can sometimes only get partially filled, depending on how a stock’s price moves.

Step 8: Monitor Your Investments

Regularly review the performance of your US stocks within your TFSA. Rebalance your portfolio as necessary to ensure that it aligns with your investment objectives and risk tolerance.

Monitoring your stocks over time is a key ingredient to investment success.

US stocks can face several events which affect their stock price. Some examples include:

  • Changing, offering, or removing a dividend
  • Starting a share repurchase program
  • Doing a stock split or reverse stock split
  • Declaring bankruptcy

Goals, objectives, and risk tolerance can all change over time. Remember that your TFSA is usually just one part of your overall investment portfolio, which generally includes other accounts such as an RRSP and a non-registered account.

Step 9: Tax Implications

The TFSA program is not officially recognized by the US tax authority – the Internal Revenue Service (IRS).

TFSA Dividend Taxes on US Stocks

In Canada, dividends earned on stocks within your TFSA are not subject to taxes, as all profits earned within a TFSA are tax-free.

If you purchase US stocks or ETFs that pay dividends with your TFSA, then you’ll be required to pay a 15% withholding tax to the IRS on the dividend payout.

This will be deducted at source, so you won’t have to worry about manually having to pay the IRS at the end of the year.

While a hypothetical US stock might pay a $100 dividend, you would only receive $85 in your TFSA due to US foreign withholding tax. The 15% US foreign withholding tax can’t be refunded within a TFSA account.

This also applies to Canadian ETFs that indirectly hold US stocks. You won’t have to pay taxes on dividends paid out by Canadian securities in the ETF, but 15% of the dividend payout from US securities within the Canadian ETF will be withheld.

TFSA Capital Gains Taxes on US Stocks

Profits realized within a TFSA investment account aren’t subject to capital gains tax. Just as you don’t have to pay capital gains tax when you sell Canadian stocks in your TFSA for profit, you also don’t have to pay capital gains tax when you sell a US stock within your TFSA for profit.

The taxes applied to US stocks and ETFs in your TFSA are only applied to dividend payouts, not the sale of an asset.

Step 10: Stay Informed

Keep up-to-date with the latest news, trends, and regulations related to TFSAs and US stocks that you are holding to make well-informed investment decisions of whether to buy or sell your stocks.

Alternative Method of Buying US Stocks in TFSA: Financial Or Investment Advisor

Financial advisor 

If you’re not very confident in your own investment strategies, then you may want to consider working with a financial advisor or a certified investment manager. These individuals are trained and certified in investment strategies and financial planning.

When speaking with an advisor, you can outline your financial goals and explain your risk tolerance. Whether you’re looking for steady, low-risk investments or fast-paced, high-risk, high-reward investments, your advisor should help you identify the best US stocks and ETFs to purchase with your TFSA.

There are two types of advisors:

  • Discretionary advisors: Exercise trades at their own discretion, without informing you of every trade they exercise on your behalf
  • Non-discretionary advisors: Notify you via call or text before initiating a trade

If you want to maintain tight control over your funds, working with a non-discretionary advisor is a good choice. On the other hand, if you trust your advisor and their long-term plan, you may opt to work with a discretionary advisor who acts on your behalf.

Most of the major financial institutions in Canada give customers the option to open TFSA brokerage accounts to invest in US stocks.

The main disadvantage of working with a professional financial advisor is that you’ll have to pay far higher fees than managing your own account or using a robo-advisor (see below).

Professionally managed accounts are subject to monthly account management fees, typically represented by a percentage of your account’s total profits. If you’ve opted for a low-risk, low-reward investment strategy, this could cut into your profits more than you expect.

Investing In US Stocks With Your TFSA: Overview

To review the information above, here’s a quick table outlining your three options for investing in US stocks with your Canadian TFSA, as well as the associated pros and cons:

Investment MethodProsCons
Self-Managed TFSA Brokerage Account– You’re in control of your investments
– Lowest trading fees
– Risky if you don’t know the market or can’t keep up with the market
Working With An Investment Advisor– You can speak with a certified professional
– Set your own risk tolerance levels
– Fit your investments into your long-term financial goals
– High account management fees
-You have limited control over your investments

Can You Buy US Stocks In A TFSA?

Yes, you absolutely can. In addition to Canadian-based investments, TFSAs can be used to invest in foreign markets, such as buying US stocks and US ETFs.

Generally, investing in US stocks and ETFs is similar to investing in Canadian stocks and ETFs. The main difference between the two types of investments is how dividends are taxed, which I’ll discuss more below.

Conclusion – Is It A Good Idea To Hold US Stocks In A TFSA?

If you’re interested in tapping into the US market, then US stocks and ETFs can be a good investment to hold in your TFSA. Just keep in mind that you’ll lose 15% of any dividends paid out by US stocks to the IRS. Aside from that, you don’t have to worry about paying any capital gains tax on Canadian or US assets.

Want to build more confidence in your investing ability? Check out my guide to investment strategies before you start trading!

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Read about how he quit his 6-figure salary career to travel the world here.

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