Can I Transfer My Tax-Free Savings Account From One Bank to Another?

Can I Transfer My Tax-Free Savings Account From One Bank to Another?
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A Tax-Free Savings Account is available through Canadian banks to residents 18 years of age or older who have a valid Social Insurance Number. Since 2008, the TFSA allows investments to grow without income or capital gains concerns.

There are no tax deductions when making contributions, but the TFSA provides more flexibility in income options, allowing tax-free withdrawals at any age. It is possible to transfer TFSA assets.

Read More​: TFSA Rules on Buying Stocks

Flexible Savings Vehicle

The TFSA was established by the 2008 budget for Canadian residents as a flexible, general-purpose savings vehicle. Unlike the Retirement Savings Plan that is strictly for retirement purposes, the TFSA allows tax-free distributions for anyone.

You can contribute up to ​$6,000 ​per year into the account, allow it to grow and elect income distributions for any reason. Withdrawal reasons may include retirement, buying a home or even a car. There is no restriction on use.

Read More​: What Is a Savings Account?

Transferring TFSA Assets

You can transfer TFSA money from one bank to another without penalty. The transfer must not go through your hands in order to qualify as a tax-free transfer. If you take the funds out of one bank and re-deposit them in another, the transaction might be considered a distribution and contribution. Re-depositing a contribution results in penalties as an overcontribution.

As long as you open the new bank's TFSA, request the transfer and the assets are sent directly from the old bank to the new, you have followed the transfer guidelines.

Handling Transfers Upon Death

The TFSA is transferable upon death to certain beneficiaries. A spouse or common-law partner may assume the TFSA as her own without incurring tax consequences. However, once you die, your spouse is no longer eligible to make contributions to both.

While alive, you are allowed to give your non-working spouse money to fund her own TFSA, so both of you have tax-free growth funds. Upon your death, your spouse may continue the growth but is only allowed to contribute to one account.

Performing In-Kind Transfers

The TFSA allows different investment options including stocks and mutual funds. If you are transferring the TFSA but intend on keeping the investments, you can. This is called an in-kind transfer, often done to reduce fees or get better account service.

Capital gains or losses are not recognized in the transfer. All in-kind transfers must be done between custodians that are both registered as investment accounts.

Other Considerations for TFSA Transfers

Another qualified transfer can happen in the case of separation or divorce. There must be a direct transfer of the funds between banking institutions in order to avoid any tax triggers. However, the couple must meet certain criteria: living at separate addresses before the transfer in addition to a court order to pay or receive a specified amount as part of the separation settlement court orders.

If both of these situations are met, the transfer will be considered qualified and will neither cause taxation or mess with the dollar amount for the contribution limit for the year.