There are several scenarios where you may need to move your RRSP assets around. For example, this could be because you want to move your RRSP to another financial institution and a new RRSP account or it could be that you have just turned 71 and your RRSP account has matured and needs to be converted to an annuity or RRIF.
Alternatively, changes to your RRSP may be as a result of adding assets from other accounts (registered and non-registered) to your RRSP. This may include transfers from an RESP, DPSP, RPP, PRPP, or a deceased annuitant’s RRSP.
Finally, you may just want to transfer or “rollover” your RRSP to the Registered Disability Savings Plan (RDSP) of a financially dependent disabled child or grandchild when you pass away. So, how do you go about transferring assets to and from your RRSP and what are the potential tax implications?
Transfers Between RRSP’s
You can transfer assets from your RRSP at one bank to another RRSP at a different bank. You can also transfer assets between RRSP accounts at the same financial institution.
To shelter your assets from income tax, you’re required to make a direct transfer between the financial institutions. A “direct transfer” infers that the transfer is made directly by the financial institutions involved. The transfer of assets can either be “in kind” or “in cash“.
In Kind Transfer means that you plan on staying invested in the same assets following transferring them without buying or selling anything. For this to work, the new (receiving) financial institution must have the same investment assets available. For example, if your RRSP account at Bank A contains shares of Company XYZ, for an in-kind transfer to work, Bank B (where your RRSP is being transferred to) must also deal in or have access to shares of Company XYZ. In a case where your RRSP is invested in proprietary assets that are not offered elsewhere, in-cash transfer may be required.
In Cash Transfer means that your RRSP investments are sold by your current provider and the resulting cash is transferred to the new financial institution where it’s then invested in new assets – stocks, mutual funds, GICs, or whatever you have agreed to purchase.
For both “in cash” and “in kind” RRSP transfers conducted on your behalf by your financial institution, no tax is withheld. While a transfer fee is likely to be charged by the financial institution doing the transfer, you should ask the receiving financial institution if they are willing to cover the fees. They are usually willing to offer you a good deal if your RRSP assets are significant.
Forms: You will need to complete Form T2033 at your new financial institution for the transfer to go ahead.
Transfers between RRSP and other Registered Plans
1. RRSP to RRIF
And vice versa.
After age 71, you can no longer contribute to an RRSP and are required to convert your RRSP into a Registered Retirement Income Fund (RRIF), an annuity, or have it paid out lump-sum. At this stage, your RRSP is considered to have “matured”. There are no immediate tax consequences when you transfer your RRSP to a RRIF. However, withdrawals or RRIF payments will be considered as taxable income in the year you receive them.
Individuals can also transfer RRSP assets into a RRIF at a younger age (less than 71 years). This may be done for various reasons including: to qualify for the $2,000 Pension Income Tax Credit and pension income splitting with a spouse. If you have converted all or part of your RRSP to a RRIF early and are still under 71 years of age, you can transfer it back to an RRSP. To process your transfer from RRSP to RRIF, you will be required to complete Form T2033 Direct Transfer.
2. RRSP to RDSP
Starting in 2011, a parent or grandparent of a financially dependent disabled child can plan to have all or some of their RRSP rollover into their child’s (or grandchild’s) Registered Disability Savings Plan (RDSP) after they pass away. A disabled child is considered financially dependent if the child was financially dependent on the deceased because of a mental or physical infirmity and had a personal income in the previous year that is less than the basic personal amount ($11,635) plus the disability amount ($8,113) for that year – total of $19,748 for 2017 ($19,475 for 2016).
The lifetime contribution limit for a RDSP is $200,000 and rollover proceeds from an RRSP will not qualify for the matching Canada Disability Savings Grant (CDSG).
When rolling over an RRSP to a RDSP, Form RC4625 – Rollover to a Registered Disability Savings Plan Under Paragraph 60(m) must be completed and included in the income tax and benefit return of both the beneficiary and the deceased.
3. RESP to RRSP
If you have been contributing to an RESP for a child who then decides to not pursue post-secondary education, you have some options on what to do with the funds:
- Keep the RESP open
- Transfer the RESP to another beneficiary
- Transfer the funds to your RRSP
- Close the RESP
- Transfer the funds to an RDSP
You can transfer up to $50,000 from an RESP to an RRSP if eligible. Form T1171 is completed to effect this transfer.
4. Retiring Allowances to RRSP
If you have received a severance pay following retirement, you can transfer the eligible portion to your RRSP without affecting your RRSP deduction limit or needing contribution room. There’s also no tax withheld if the transfer is directly processed by your employer.
For the non-eligible portion of your retiring allowance, you can contribute it to your RRSP or a spouse/common-law partner’s spousal RRSP if you have contribution room left.
5. RPP to RRSP
You can transfer lump-sum Registered Pension Plan (RPP) payments to an RRSP on a tax deferred basis if the transfer is done directly by the payer or employer. Complete and submit Form T2151 at the receiving financial institution.
Transfers from a Non-Registered Account to an RRSP
You can transfer investment assets from your non-registered account to an RRSP. The transfer can be done “in kind” or “in cash“.
For an in-kind transfer/contribution, the assets (such as stocks and bonds) are transferred directly to your RRSP. The transfer or contribution amount to your RRSP is deemed to be the fair market value of the investment and any gain is subject to capital gains tax. If your assets were transferred at a loss (compared to your adjusted cost base), you cannot claim a capital loss due to the superficial loss rule. To avoid this, you can decide to sell the securities (stocks, bonds, etc.) and then wait for 31 days or more before purchasing the same securities in your RRSP account. This way, you avoid the superficial loss rule and can claim a capital loss for tax purposes.