TFSA Strategies for Couples: 3 Simple Steps to Boost Your Family Savings

If you’re married or in a committed relationship – congratulations! In addition to having someone to snuggle with when you watch Netflix, you also have access to some big financial benefits.

For example, couples can share living expenses. You can save thousands of dollars when you split the cost of things like housing, vehicles and vacations. Groceries are also cheaper when you shop as a couple.

There are tax advantages, too. Income splitting is one strategy available to couples. Couples also have access to many tax deductions, credits and government benefits.

And when it comes to saving and investing, couples have an edge there, too. For example, accounts like RRSPs and TFSAs have special rules for spouses. Also, most pension plans will pay a lifetime benefit to a surviving spouse.

Simply put, there are tons of financial perks available to couples. So it’s no wonder many people choose to shack up!

I know. Money can’t buy love or happiness.

But with a good plan, couples can at least make their futures more comfortable.  So it makes sense to coordinate your financial decisions with your spouse.

TFSA strategies for couples: A hidden gem

Tax Free Savings Accounts (TFSAs) are a big opportunity for couples. But I often see this opportunity missed. That’s too bad, because TFSAs are powerful wealth building tools for couples.

What are TFSAs? The Tax Free Savings Account program began in 2009. TFSAs are accounts that allow Canadians who are 18 years or older to save money on a tax-free basis.

Contributions to a TFSA are not deductible for income tax purposes. But the contributions in the account can grow tax-free via interest, dividends, and capital gains.

Now here’s the best part: TFSA contributions and growth can be withdrawn completely tax-free.  That’s the number one benefit to these accounts.

How much money can you put into a TFSA? You accumulate TFSA contribution room for every year you are 18 (starting in 2009). You can find your TFSA contribution room by logging into your CRA “My Account.” You can also check your latest tax return.

So how should couples use these accounts? Here are my top three TFSA strategies for couples.

Three Simple TFSA Strategies for Couples

1. Make sure you both have a TFSA.

Like the good book says, “Two are better than one.” That’s why I always recommend both spouses have a TFSA.

As of 2021, a person who has never opened a TFSA can contribute up to $75,500 to a new account (depending on your age). For a couple, that contribution room can be as much as $151,000 if you open two new TFSAs (depending on your ages).

That’s a lot of room where a couple’s money can grow tax-free.

Regardless of your ages, a couple can multiply their tax-free savings potential by opening up two TFSAs. And don’t worry. If you don’t have the cash to fully fund your TFSA, your contribution room carries forward every year, and it never expires.

Also, one spouse can simply give the other spouse money to contribute to their TFSA without any tax consequences. That’s a good way for you to maximize your family tax-free savings opportunity.

2. Each spouse should use the “Successor Holder” designation.

TFSAs have special rules that apply to legal spouses and common law partners. To maximize these benefits, each spouse should designate each other as “Successor Holder.”

What does the “Successor Holder” designation mean? It’s a special beneficiary designation that only applies to TFSAs. If one spouse passes away, the successor holder designation allows the transfer of their TFSA to the surviving spouse’s TFSA without any tax implications.

TFSAs also have a “beneficiary designation” option, just like RRSPs. But couples should use the “Successor Holder” designation when possible. It makes settling the estate easier, and can minimize any estate taxes or expenses.

3. Try to keep the value of the two TFSAs equal.

Like many things in life, balance is important. TFSAs are no different.

Whenever possible, I recommend couples have TFSAs that are equal in size. Why? Because in most cases, it balances the excess contribution room, too. Let me explain.

As mentioned above, a person 18 years or older accumulates contribution room every year. That contribution room is valuable, because it’s an opportunity to save on a tax-free basis. You should use your TFSA room, or protect it whenever you can.

Here’s an example:

Scenario 1:  Chris and Avery are a married couple. Neither one has a TFSA. Both Chris and Avery have accumulated $75,500 worth of TFSA room ($151,000 total as a couple). If one of them were to pass away, the couple would “lose” $75,500 worth of tax-free savings potential.

Let’s face it, not everyone can keep their TFSA fully funded every year. So many people have excess TFSA contribution room. To minimize the risk of “losing” a big chunk of their total TFSA contribution room, a couple should consider splitting their investments equally between two accounts.

Let’s continue with our example:

Scenario 2:  Chris receives an unexpected inheritance of $50,000. Chris wants to invest the money in a TFSA, and wants to protect the couple’s total contribution room. The solution is to open two TFSAs and deposit $25,000 into each.

Since they are married, Chris can give Avery $25,000 to deposit into a new TFSA, without any tax consequences to Chris. This balanced approach also minimizes the loss of contribution room, should one of them pass away.

(There’s also the possibility that one spouse “gains” a big chunk of TFSA room, if things are not equalized. But I’ve found that most couples prefer to minimize their downside risks, versus crossing their fingers and hoping for the best.)

To determine the best strategy for you and your spouse, please consult with a trusted financial advisor.

Conclusion

Couples have a ton of financial advantages available to them. Coordinating TFSAs is a big opportunity. With some smart planning, a couple can set themselves up for a future of health, wealth and happiness.