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Transferring a TFSA from one financial institution to another can feel like going back to the dentist after two years of skipping appointments. It’s a little scary! And so much easier to not do it at all! And who knows, maybe if you just don’t think about it and keep eating gummy bears, the whole thing will just go away.
Don’t let a little fear keep you from making a smart financial decision. Transferring a TFSA can put more money in your pocket through lower fees, give you better access to more investment types, and make it easier to manage your investments by having everything in one place. Often, there’s fewer tax implications to think through than you think, and many institutions will reimburse any transfer fees. In most cases, you’ll be done before you know it. No novocaine required.
It’s important to have your TFSA transfer initiated by a financial institution through what’s called a ‘direct transfer’. If you withdraw the money yourself to move to a new institution, which is called an ‘indirect transfer’, the government considers that a TFSA withdrawal, and that impacts the room you have for the year. In contrast, direct transfers have no tax implications and do not impact your contribution room.
The term “in-kind” is just another way of saying “as-is.” It means you are swapping one account type or institution for another without making changes to the contents of the account itself. So if your current TFSA includes stocks, bonds, and index funds, an in-kind transfer often means that your new TFSA will include the same stocks, bonds, and index funds. Depending on where you transfer to, the receiving institution may sell the positions for you and rebalance your portfolio according to its strategy — but this still counts as an in-kind transaction.
Cash transfers are required when you own an asset in your TFSA that is not supported by the financial institution you wish to transfer it to. In that case, you will need to sell your holdings in that particular asset, then transfer the cash to the new institution, where you can either keep it in cash or invest it in another asset. There are typically no tax implications as long as the cash is part of a direct transfer..
There are quite a few reasons you might want to transfer your TFSA to a different financial institution, including:
better perks. When you give a place more money, they’re likely to offer you more services in return.
Some financial institutions charge transfer-out fees, which can range from $50-$200. The good news is that the institution you’re transferring your money to will often cover those fees for you.
With a direct transfer, there are no tax consequences. Your funds go from one TFSA to another, with no effect on your contribution room and no tax penalties. With an indirect transfer, however, you need to be aware of your contribution room and whether or not the transfer will push you over your limit. If so, you’ll be assessed a penalty in the form of a 1% tax for every month that you exceed your contribution room. The CRA goes into more detail here.
No matter what type of TFSA transfer you make, it’s important to note that you will not be taxed on any investment gains or losses. Those are never taxable within a TFSA, no matter where you hold your funds or how many times you transfer them.
If you are interested in transferring funds that are not currently held in a TFSA — from an RESP or RRSP with another institution, for example — there can be tax implications. You can expect to pay capital gains taxes, along with the 1% tax on any amount you transfer that exceeds your available contribution room.
Yes, you can transfer between TFSA accounts freely without affecting your contribution limit or incurring capital gains taxes through a direct transfer. Some institutions charge a fee (anywhere from $50 to $200) for moving your account.
No, as long as you use a direct transfer between institutions, you can transfer the entirety of your existing TFSA without affecting your contribution room. You need to be more careful with indirect transfers.
Yes, you can transfer your TFSA to an RRSP, non-registered account, or other account type. Just know that earnings from those funds may no longer be shielded from capital gains taxes, and your contribution space will not be returned until the following year.
