At this stage, we’re still adding to our RRSPs each year. But all too soon it will be time to change our RRSPs into RRIFs. And once you have a RRIF whether you want to or not, you have to take some assets out each year and pay tax on them. The federal government sets a minimum withdrawal schedule generally starting at age 72. But what if I don’t want to make my withdrawals in cash? I wanted to know if I could take stocks out of my BMO InvestorLine account without selling them.
Why Would I Want to Transfer Out Stocks from my RRIF?
There isn’t a lot of benefit to making a withdrawal “in kind” from a RRIF. Basically, it saves two trading commissions: one for the sale of the stocks inside the RRIF, and one for re-purchasing the stocks in a non-registered brokerage account outside of the RRIF.
There is one other advantage: it reduces the risk that you might sell for a lower price than you have to pay to re-purchase the same shares.
Because you will pay tax based on the deemed value of the shares on the day you transfer them out (not based on the book value, or the price you paid for the shares when you first invested in them) you will not avoid any tax on the capital gain.
In fact any increase in value is not even considered a capital gain. The entire withdrawal is treated as “income” by the government and unfortunately you pay regular tax on it, not just capital gains tax. You can’t claim any capital losses in a RRIF or when making a sale to make a cash withdrawal from a RRIF either. Sorry.
Why Most People Don’t Transfer Stocks out of Their RRIFs
Most people don’t care if you can transfer stocks out or not. They need cash!
If you need the cash right away, there is no need to transfer the stocks out. It’s only worth transferring the stocks out if you have plenty of cash and you want to keep holding that stock for the long term.
For example, you might need the cash value of those stocks to either
(a) live on or
(b) pay the deferred taxes with.
Remember, when you make a withdrawal from your RRIF you have to pay income taxes on it. Generally, you will have to pay when you file your quarterly or annual tax return.
If you withdraw more than the required annual minimum, you will have to pay a portion of the taxes immediately though as tax is “withheld” and submitted to the CRA by your financial institution.
Checking Whether “In Kind” Transfers Out are Permitted to Meet RRIF Withdrawal Requirements
I used the BMO InvestorLine MyLink secure email system to ask whether it is possible to make a required RRIF annual withdrawal “in kind” rather than in cash.
Specifically, I asked whether stocks could be transferred in kind from a RRIF to a regular non-registered InvestorLine brokerage account in order to meet the mandatory government withdrawal schedule.
Stock Transfers Out of a RRIF Are Permitted at InvestorLine
Yes, you can transfer shares directly out from an InvestorLine RRIF into a non-registered InvestorLine brokerage account.
The detailed reply included the following information:
“With InvestorLine, the default option is cash payments. If you would like to setup an in-kind payment, they are done on a manual basis. What you would be required to do is contract us, 2 weeks in advance from the scheduled cash payment, and request an in-kind payment. The agent assisting you will submit the request for in-kind shares to be moved to your non-registered cash account and ensure to cancel the cash payment.
Ensure [that a non-registered cash account] is opened prior to the payment being requested to ensure smooth processing of the minimum in-kind RIF payment.”
So it can be done, but you have to be prepared:
- Set up your InvestorLine non-registered account well in advance of your first RRIF withdrawal. (I’d suggest opening it at least 2 months in advance.)
- Two weeks (or earlier if they will let you) ahead of transfer time, contact InvestorLine and request the schedule cash payment be cancelled.
At that time request the in-kind transfer. You will have to specify
- which shares to move,
- how many shares to move,
- and how you will pay the withholding tax required by the government if you are withdrawing more than the required minimum (which is likely as the shares are not likely to divide evenly into your minimum requirement).
Let’s hope we can all transfer the shares in kind –and hope it’s because we’re all rolling in so much cash we don’t need the money!
- The Canada Revenue Agency overview of a Registered Retirement Income Fund, RRIF
- Withholding Tax on Payments from a Registered Retirement Income Fund
Have you done an in-kind transfer of shares from your RRIF to a brokerage account? Did it go smoothly? Please share your tips or tricks with others facing this same challenge by leaving a comment.