If we love tax-free savings so much, why are there so many TFSA orphans?
There were 28.2 million TFSAs as of 2022, the most recent year for which there is data. In 14.3 million of them, there were no transactions that year.
Fine, these are hard times for some households and TFSA contributions may rank at the bottom of their financial priority list. But there are some other signs that people are opening TFSAs and neglecting or forgetting them. These are Canada’s TFSA orphans.
There were 17.8 million TFSA holders in 2022 and close to 8 million of them did not contribute to one of these accounts. Another sign of TFSA neglect is the fact that 2.3 million people have three or more TFSAs. The average number of TFSAs per person is 1.6.
Keeping track of multiple accounts of any type is hard to do in a way that gives all of them the attention they need. With TFSAs, multiple accounts make it difficult to keep track of contributions and withdrawals, and to provide the required account management. For example, rebalancing diversified portfolios where stocks have run way ahead of bonds, or figuring out what to do with matured guaranteed investment certificates or accumulated dividends.
I wrote about some year-end TFSA moves a short while ago - make sure you have designated a successor holder or beneficiary, maximize contribution room, consider making a planned withdrawal before year’s end rather than waiting until the new year and more. An addendum to the list: Take your orphan TFSAs in hand. Either give them the attention they need, or close them.
A total of 1.5 million TFSAs were closed in 2022, which tells us that some people are cleaning up their finances or settling the estates of deceased individuals. Meantime, 3.1 million new TFSAs were opened that year. A challenge to the people opening new TFSAs this year and beyond - commit to the account, or shut it down. We already have enough TFSA orphans.