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Question about withdrawing from an RRSP or doing a transfer in kind

3K views 12 replies 9 participants last post by  RBull 
#1 ·
Hi all,
I've got a RRSP question that I'm not sure how it works. So here is an example... I have a few dividend stocks in an RRSP account. Let's say I turn 65 and need to withdraw these. I don't want to sell them. Can I do a transfer in kind to a non-registered account and pay the government out of my pocket? Or will I only be able to sell a portion cause the money paid to the government needs to come directly from the RSP account? I think if I was to withdraw from this account now that money would automatically be deducted.

I obviously wouldn't want to touch the investments though if they had been compounding for years and that's my issue.

Anyone have any ideas/answers or strategies?

Thanks
 
#2 · (Edited)
Hi, Pretty sure in kind transfers only work if the transfer is from one RRSP to another.

You will have to sell the stock and will have RRSP income. The investment company you have your RRSP w will will then withhold some income tax from this RRSP income and deposit the remainder in your bank account. Not sure how much you are withdrawing but they whold 20% for up to $15,000, 30% for above.
 
#4 ·
Hi Black Wizard,

First off, why do you “need” to withdraw the stocks if you don't need the money.
There is no requirement to do anything with an RSP until age 71 – and even then you can simply roll everything into an RRIF.

But, if you DO want the money from the stocks (to spend or invest) you can simply sell them in the RSP, take out the cash (paying a 30% withholding tax), move the money to an unregistered account, and then spend or invest the money. The 30% tax is regardless of where the gains came from – dividends, capital gains, or interest – it doesn't matter. It will simply be 30% of what you withdraw.

If you then invest that money in the same dividend paying stocks (in the unregistered account), then your new adjusted cost base will be 100% of the purchase price, so going forward in the unregistered account, only new dividends, and “net new” capital gains will be taxable. The past dividends and capital gains on the stock will NOT be taxed in the unregistered account.

You say you wouldn't want to sell the investments because they've been compounding – that's really of no issue within an RSP. That IS an issue in a non-registered account – but not in an RSP.

Just one caveat on the 30% withholding tax – you pay 30% now, but come April, when you do your taxes, that amount will be adjusted up or down based on your other income in the year.

Joe
 
#8 ·
... you can simply sell them in the RSP, take out the cash (paying a 30% withholding tax) ...
Just one caveat on the 30% withholding tax – you pay 30% now, but come April, when you do your taxes, that amount will be adjusted up or down based on your other income in the year.
I've been seeing RRSP/RRIF withdrawals being described as having a flat 30% withholding tax and am baffled where this figure comes from.

My understanding is that for all but Quebec, the first $5K has 10% taken from it, the over $5K to $15K has 20% and over $15K has 30%. For a $20K RRSP withdrawal, that's $5K x 10% + $10K x 20% + $5K x 30% = $500 + $2K + $1.5K = $4K instead of the $6K that the 30% flat rate suggests.

For Quebec, on non-periodic withdrawals,the amount ranges stay the same but the first $5K is 21% (Feds plus Quebec), the next range is 26% and the last range is 31%, pulling the total bill closer to 30% but still under.

https://www.taxtips.ca/rrsp/withholdingtax.htm
https://www.investingforme.com/classroom/account-type/rrsp/withdrawals/faq?q=200


Cheers
 
#7 · (Edited)
... So here is an example... I have a few dividend stocks in an RRSP account. Let's say I turn 65 and need to withdraw these. I don't want to sell them.

Can I do a transfer in kind to a non-registered account and pay the government out of my pocket? Or will I only be able to sell a portion cause the money paid to the government needs to come directly from the RSP account? I think if I was to withdraw from this account now that money would automatically be deducted ...
Where you choose to make an in-kind withdrawal of the stock from your RRSP, the financial institution (FI) has to withhold tax based on the FMV. Others who have posted they have done this has said they'd made sure to have the cash to cover the withholding tax in their RRSP before making the request to get the shares out, as-is. Being short of the withholding amount meant some of the shares were sold by the FI to cover the withholding tax with a smaller number of shares being delivered.

https://www.taxtips.ca/rrsp/inkindwithdrawals.htm


As others have said, as long as one does not mind the two commissions (one to sell for cash in the RRSP then another to buy in the non-registered account), it is simpler to sell for cash, withdraw then re-buy. Unless the share price gains dramatically (and possibly one dividend is missed), there shouldn't be significant compounding being "lost" versus an in-kind withdrawal.


You'd have to ask the FI is they'd let you direct them to pay the withholding tax from the non-registered account or other means but I am doubting they would want to take on the work versus what's already setup in their systems.


I'm not clear on why there needs to be a withdrawal at age 65 but if there's going to be a series of these type withdrawals, you might want to consider setting up a RRIF as most FIs don't have a withdrawal fee for the RRIF where they do for an RRSP and whatever part of the RRIF withdrawal fits the minimum withdrawal, it won't be subject to the withholding tax (only the excess amount will).

https://www.taxtips.ca/rrsp/rrifminimumwithdrawal.htm



Cheers
 
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