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
Good news!
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!
Related Reading
- The Canada Revenue Agency overview of a Registered Retirement Income Fund, RRIF
- Withholding Tax on Payments from a Registered Retirement Income Fund
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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.
Things done on a manual basis using an agent usually have a fee attached. BMO’s comments above do not make clear if a fee is involved.
I agree there is likely a fee charged and it could be quite large. A transfer out is listed at $135 and that might be what they consider transferring stocks out of a RRIF and into a non-registered trading account to be. Still, even if there is a fee it might be worth it in some circumstances. I certainly would ask them for the details of any costs before making the request for a transfer, especially since the fees change fairly often.
The May 1, 2014 fees and commissions schedule is now available online at: https://www.bmoinvestorline.com/selfDirected/pdfs/FeeSchedule_EN_May.pdf . Unfortunately, it doesn’t directly address this type of transfer.
As a retiree dealing with two banks, I have found one bank claims it will do a direct in-kind transfer with the transfer value calculated using the FMV at the time the equities were removed from the RRIF and deposited in the TFSA. The other bank wants to do what your bank is proposing.
What is the advantage of the in-kind transfer? If you transfer the minimum amount in early January, say units of D.UN which is presently yielding more than 9%, you will not be required to pay the tax until the following year. You will have more than a year to accumulate funds in the TFSA to assist with the payment of the tax due.
The next year, the D.UN yield will be available for living in retirement and as the money is coming out of a TFSA, it will not be counted as income and will therefore come with a lot of associated benefits.
For a retiree trying his best to makes end meet and ensure that his wife does not run out of funds even if she lives into her 90s, as many women in her family have done, these little problems and quite big.
Thanks for sharing your insights and strategy. Yes, even small benefits can really add up over a few years, especially within a TFSA. I guess as we approach a RRIF we’ll have to check very carefully what each brokerage will allow us to do.
Thanks again for commenting!
From TaxTips.ca
“The Minister of Finance issued a press release on November 20, 2008 indicating that he was expecting all financial institutions to accommodate in kind transfers from a RRIF, at no cost to clients, or offer another solution that achieved the same result.”
Thanks for this excellent information!
If you move a stock in a RIF to a Non-Reg account, is the book value and market value initially the same? Does this mean there is no capital gain/loss on the stock transferred at time of transfer?
When the stock is removed from the RRIF, the entire value of that removal is taxable income. For e.g. if you bought $5000 of BCE in a RRSP, and later it was worth $10 000 and you transferred it to a RRIF and then withdrew the $10 000 worth of BCE stock, you would be taxed as having received $10 000 in income from your RRIF that year.
When it lands in your non-registered account, it’s book value will be $10 000, not $5 000.
I have a self directed RRIF with Canadian ShareOwner Although small, it contains DRIPS and has done quite well. ShareOwner has been taken over by Wealthsimple which will not be handling any RRIFs with DRIP holdings. I’ve been told to initiate moving my account holdings by Nov. 02, 2020. I would like to move it DRIPs intact such that I don’t have to cash out the RRIF but no one appears to be able to deal with the DRIPs. I have no idea where to move it or how – any ideas or suggestions?
Sorry but no I don’t have any suggestions. I hope that you found a good alternative in time.
When you transfer out, “IN KIND” US dollar stock from your RRIF into your non registered margin account, does the stock stay in US dollars?
Sorry but I do not know. I would phone InvestorLine before I tried the transfer.