A few commenters were interested in knowing more about the TFSA December Shuffle that I alluded to in my previous post. This simple strategy allows you to move your Tax-Free Savings Account from one institution to another while avoiding some or all transfer fees. It takes advantage of a property unique to the TFSA: any amounts withdrawn from a TFSA in a calendar year is added to your contribution room for the next calendar year. By withdrawing from a TFSA account in December and contributing to another TFSA account in January, you have effectively moved your account from one institution to another without doing a transfer. A word of caution here: do not attempt a TFSA withdrawal and contribution in the same calendar year because you may run afoul of TFSA over-contribution rules and the stiff penalties that go with it.

Let’s look at a concrete example of a TFSA December Strategy. Say you have a TFSA at Bank A invested in a high interest savings account. You are interested in moving the TFSA from Bank A to Bank B for whatever reason. Some institutions may charge as much as $125 to $150 to transfer your account. But TFSA accounts typically allow a certain number of free withdrawals. Even if the institution charged a withdrawal fee, it is likely to be much less than a transfer-out fee.

Here’s what you could do: withdraw the entire balance from your TFSA account in Bank A towards the end of December. When the New Year rolls around, open a new TFSA account at Bank B and deposit the amount you withdrew from Bank A. The December Shuffle works best for TFSA accounts that hold cash or cash equivalents. But it can also work when you hold investments in a TFSA and want to move it to another institution. For instance, if you and your spouse each have a TFSA account and it holds one security, you could withdraw the contents of both to an investment account and transfer it out to another broker allowing you to avoid at least one transfer out fee. As always, watch out for fees, tax implications and do own your due diligence because fee structures at your institution may be different.

There are a few situations in which the December Shuffle doesn’t make sense:

1. Some financial institutions such as ING Direct and Ally do not charge transfer fees. If you moving your TFSA from an institution that allows free transfers, you may not want to bother with the December shuffle at all.

2. If you have large accounts at the target institution, you should ask for a refund of TFSA transfer fees. Many institutions may initially balk at a transfer fee refund for a small account but these fees are always negotiable. If you can swing a transfer fee refund, the December shuffle becomes moot. Just fill up and sign the TFSA transfer form and you are done!