How does a spouse’s death impact your TFSA contribution room?

Available TFSA contribution room

Canadians aged 18 and older accumulate new tax-free savings account (TFSA) contribution room every year. The annual TFSA contribution limit has changed many times since the account was introduced in 2009. As of January 1, 2025, an individual born in 1991 or earlier (who was 18 years or older in 2009) who has never contributed to a TFSA may have as much as $102,000 of cumulative TFSA room.

In addition to year of birth, TFSA room is impacted by a couple of factors. Non-residents of Canada do not accumulate new TFSA room. And TFSA room adjustments are made based on prior contributions and withdrawals. When you contribute, your remaining TFSA room decreases. When you withdraw, your remaining TFSA room increases, but not until the following calendar year.

What happens when you inherit a TFSA?

When you inherit a TFSA, like you did, Roberta, the impact of contributing the funds to your own TFSA depends on your relationship to the deceased. When your spouse dies, you have up until December 31 of the year following their death to deposit funds from their TFSA to your own account without having to take up any your TFSA contribution room.

This applies when your spouse named you as beneficiary of their TFSA, but even if they did not, it can still apply if you are a beneficiary of their estate.

If you’re a non-spouse beneficiary of a TFSA, there’s no special treatment for the TFSA inheritance. You do not have the ability to add it to your own TFSA, at least not without using your own TFSA room.

Successor holder

If your late husband named you as successor holder, Roberta, you may be able to take over his TFSA. Only a spouse can be a TFSA successor holder. If you have your own TFSA, you may still want to combine the accounts.

One advantage of being a successor holder is that any income and/or growth earned after your spouse’s death is considered tax-free. Otherwise, if you are named as beneficiary, that income and growth is taxed as ordinary income. The entire account value can still be transferred to your own TFSA, however, subject to the same timeline of December 31 of the year after death.

Confirming your TFSA room

You can determine your TFSA room, Roberta, by contacting the Canada Revenue Agency (CRA). The CRA can confirm your TFSA room by phone or using CRA My Account online.

One thing to be careful about is there’s usually a lag in the accuracy of TFSA room. The CRA’s records are based on your TFSA room as of January 1, and for the first several months of the year, your TFSA contributions and withdrawals for the previous year may not yet be updated.

This can lead to inadvertent misunderstandings of TFSA room, and for some taxpayers, it occasionally results in TFSA overcontributions.

What happens if you overcontribute to your TFSA?

When you overcontribute to your TFSA, you are subject to a penalty of 1% per month on the overcontribution amount, as well as interest on the penalty. This can add up quickly, and if you do not notice this for several years, the repercussions can be significant.

What to do with a deceased spouse’s TFSA

In your case, Roberta, you may be able to transfer the entire balance of your late husband’s TFSA to your own TFSA without impacting your own contribution room. If you are successor holder, you can choose to take over his TFSA. If not, you may have some taxable income on the post-death dividends, interest and capital growth. Finally, you should be mindful of the deadline of December 31 of the year after his death to deposit the TFSA proceeds without using your own room.

Read more about TFSAs:

• What types of tax-free savings accounts (TFSAs) exist?
• How does a TFSA work?
• When not to contribute to a TFSA
• TFSA vs. RRSP: How to decide between the two

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

Linkedin Twitter Facebook Website