TFSA December Transfer Strategy

A while back I wrote about a TFSA transfer strategy which I came up with called the TFSA December Strategy.

If you own an investment account and want to transfer it to a new financial institution, typically your current brokerage or bank will charge a transfer fee.

If you want to transfer a TFSA account, you have the option of selling the investments in the TFSA account, do a cash withdrawal near the end of the year, open up a new TFSA account somewhere else, and then contribute the cash to the new account in January of the following year.  This will allow you to avoid paying the transfer fee.

Not surprisingly, I wasn’t the only one to think up this idea – Canadian Capitalist has written about it and even came up with a better name – the TFSA December Shuffle.

It isn’t always the best move

The problem with this strategy is that if you own securities in your account that have trading costs, such as stocks or ETFs – you might find that the costs of selling and then re-buying end up being more than the transfer fee you saved.

Another factor, is that most brokerages will cover your transfer fee if you move enough assets to them.  At the moment, most TFSAs are not that large, but in a few years they will be.

TD Waterhouse has started charging the transfer fee if you do an all redemption from a TFSA, so it seems that the brokerages have caught on to this strategy.  Find out how your brokerage handles this situation.  If necessary you can leave a few cents in the account to avoid the fee.

The strategy is only worth doing if

  • You can’t get the new financial institution to cover the transfer fee
  • The trading costs are less than the transfer fee.  Don’t forget you have to sell the securities and buy them back again later.
  • If you have a high interest savings account, this strategy is perfect because there are no trading fees.

Consolidate TFSA into non-registered account

Another idea (which I learned from the Canadian Money Forums) is to consolidate the TFSA into your non-registered account, temporarily, in order to reduce the number of transfer fees to be applied. This might make sense if your new brokerage will only pay for one transfer fee, or if you have so many securities in your open account, that doing an in-kind transfer is the only reasonable option.

3 replies on “TFSA December Transfer Strategy”

If you chose to consolidate in-kind transfer to taxable account, consider the tax consequence of the end of year capital gains distributions that some funds issue.

It’s a shame brokerages feel the need to upset their clients and create badwill. But they do it because they know he other dealer will generally pay it.

If you have to pay the fee personally, complain to the branch manager and if that gets you nowhere try the Ombudsman for Banking Services.

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