If you have an RRSP, you can transfer it in different ways. Maybe you want to transfer or convert it into retirement income. Another type of transfer is if you want to move it from one bank or dealer to another. Here are the steps required for transferring your RRSP.
How to Transfer or Merge Your RRSP (From One Bank to Another)
At some point, you might want to transfer your RRSP to a new bank. People do this if they want to consolidate accounts or find cheaper investments. They might also select this option if they want a self-directed account.
But, there are a few misconceptions to clear up:
- People think transfer fees are high: Transfer fees might be $50 to as high as $150+tax. But, you might be able to get your new bank advisor to pay some or all of your transfer-out costs.
- People think you have to pay tax on transfers: Transfers do not incur taxes and can be made in kind or in cash.
Types of RRSP Transfers
When making transfers, you can request a full or partial transfer. And, then decide if you want an in kind transfer or an in cash transfer.
Partial Transfers: These are only if you want to move certain positions in your account from one bank to another.
Full Transfers: These are if you want to move your entire account from one bank or dealer to another.
In Kind Transfers: In kind transfers are straight transfers from one account to the next. Nothing is liquidated.
In Cash Transfers: In cash transfers are when you sell, liquidate or redeem assets in an old account and cash is transferred to the new account. This option is used by people when one bank doesn’t offer the same account option as a new bank. A drawback is you might lose money on your assets if prices are down.
Note: Talk to a financial advisor about the ramifications with in cash transfers. You won’t have input in selling price or times when positions or sold. When transferring non-registered accounts, you might cause a capital gains tax.
To make an RRSP Transfer to a Bank
- Choose in kind or in cash for your transfer.
- Speak to the new bank where you want to make the transfer and bring a printout of your investments from your current bank.
- Ask if they will pay some or all of your transfer-out fees. Fees can vary but might be $50 to as much as $150+tax (2018).
- Confirm you know all fees and financial ramifications for making transfers as they can be quite expensive.
- Make your transfer by filling out the Form T2033 transfer form with the new bank.
Follow up to confirm your transfer is complete. It should take no more than 10-business days.
How to Transfer or Convert an RRSP into Retirement Income
Depending on when you retire, at some point, you may want to turn your RRSP into retirement income. Because you’ll know ahead of time how much income the account can generate, it can help you plan for the future. Your RRSP lowers your income tax during your highest earning years and defers it to when your income is lower, in retirement.
Income from your RRSP is taxable and any conversions should be completed at the end of the year that you turn age seventy-one.
Three options for converting your RRSP include an RRIF account, a cash withdrawal or you can purchase an annuity.
Set up a registered retirement income fund (RRIF)
RRIFs will give you income for life and you have the opportunity to grow that income through investments. It’s a sustainable form of income that helps you keep up changing inflation levels.
With an RRIF account, you can make withdrawals but you can’t make deposits into the account.
With this type of plan, you can:
- Select the amount you want to deduct monthly for your retirement income.
- Select a specific plan of investment for the account.
- Buy an annuity with the balance that’s in the account.
Take cash withdrawals
If you have an emergency such as a job loss and you need cash, you can withdraw from your RRSP. People that take withdrawals do so if full pension benefits haven’t started.
Making a Withdrawal Due to Financial Hardship
To make a withdrawal, reach out to a financial institution in the province where you set up the RRSP. The financial institution will review your request with you and you’ll fill out paperwork for the withdrawal. Each province has their own forms to fill out.
Depending on the reason for your withdrawal, the financial institution will tell you what documentation you need to bring. They may ask for medical bills, a doctor’s note or past due notices for rent or a mortgage. There is no charge to file the request, but a bank may have a small surcharge for filing the forms and having the withdrawal authorized.
Reasons You Can Use to Unlock an RRSP
Financial hardship reasons can include:
- You have low income.
- You have high disability- or medical-related bills.
- Risk of eviction from a rental property or your home.
- You need the first and last month’s rent on a rental property.
- You’re over age fifty-five and want to unlock fifty percent of your RRSP one time.
- You’ve moved out of Canada and are no longer a resident.
- Your doctor states you have a short life expectancy.
- You’re age sixty-five or older and the balance is small.
Tax Breakdowns for RRSP Withdrawals
When you withdraw money early from your RRSP, it’s considered income. The bank will hold back the portion that’s due to the Federal Government.
The withdrawal tax rate breakdown is:
- Withdrawal tax rate of ten percent for up to $5,000. Quebec residents would see five percent withheld.
- Withdrawal tax rate of twenty percent for $5,000.01 up to $15,000. Quebec residents would see ten percent withheld.
- Withdrawal tax rate of thirty percent for any amount over $15,000. Quebec residents would see fifteen percent withheld.
Exceptions include the Home Buyers Plan (HBP). Buyers can take out up to $25,000 for their first home. The other exception is the Lifelong Learning Plan. This is for spouses (not children) going back to school. You can take out $10,000 tax-free for a maximum of four years. But, ten percent has to be repaid into the RRSP each year for ten years.
People that open annuities want a minimum income and an annuity is a way to create a guaranteed income for the rest of your life. Benefits include they are good in low-interest environments and easy to maintain. But, downsides include they are expensive and payouts can be low.
Ready to Find the Best RRSP?
Explore the different RRSP scenarios with a financial advisor and discuss the financial goals you hope to achieve. This can help ensure you pay the lowest taxes and have income for life. If you are transferring your RRSP to a new bank, ask if they will cover all your transfer fees. Because they provide the forms, a transfer is relatively simple. But, ensure you know the financial costs for transferring or selling assets. If you have any questions, contact RateSupermarket.ca.
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