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



## The Black Wizard (May 16, 2017)

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


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## Jimmy (May 19, 2017)

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.


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## Onagoth (May 12, 2017)

Your broker very likely will liquidate enough securities to cover the withholding taxes

You can write to the CRA and provide them with the expected taxes in advance in the hopes of getting a waiver to provide to your broker, not sure how that would go


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## Joebaba (Jan 31, 2017)

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


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## cainvest (May 1, 2013)

The Black Wizard said:


> Let's say I turn 65 and need to withdraw these. I don't want to sell them.


I think a little more information to clarify the above statements would help. To me it's not making sense to withdraw and not sell.


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## kcowan (Jul 1, 2010)

When you are 72, you can sell a holding and then pay the tax and reinvest the rest in the same stock. It will have a new cost base going forward. Cost is $20.


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## Eclectic12 (Oct 20, 2010)

The Black Wizard said:


> ... 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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## Eclectic12 (Oct 20, 2010)

Joebaba said:


> ... 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


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## The Black Wizard (May 16, 2017)

I should have specified...this is just future planning. I'm not withdrawing anything for many many years..


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## The Black Wizard (May 16, 2017)

Eclectic12 said:


> 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
> 
> ...


This was really helpful. Thanks. And yes I definitely don't need to withdraw anything at age 65.


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## twa2w (Mar 5, 2016)

Eclectic12 said:


> 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.
> 
> ...


Not quite true. If you make a withdrawal under 5000 from your RSP, there will be withholding tax of 10%

But if you make one large withdrawal of over 15,000, then you will have 30% with held.

If you make multiple smaller withdrawals of less than 5000, then 10% will be with held on each withdrawal. So your overall tax withheld will be 10% even if your multiple withdrawals add up to more than 10 or 15, 000.

Although when this was introduced, CRA's thinking was the RSP institution would withhold more once you hit the different thresholds in order to match the higher withholding on the amount withdrawn for the year. At the time technology could not keep up (many were still paper based) and CRA recognized there would be no way to enforce this as people could hold multiple RSPs at different places and it would be super confusing to have 10% withheld on the first withdrawal and a much larger amount on a subsequent withdrawal. And ultimately the CRA gets their pound of flesh anyway.


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## Eclectic12 (Oct 20, 2010)

twa2w said:


> Not quite true. If you make a withdrawal under 5000 from your RSP, there will be withholding tax of 10%
> But if you make one large withdrawal of over 15,000, then you will have 30% with held ...


This is why I like to ask questions ... I learn something new all the time. :biggrin:




twa2w said:


> ... If you make multiple smaller withdrawals of less than 5000, then 10% will be with held on each withdrawal. So your overall tax withheld will be 10% even if your multiple withdrawals add up to more than 10 or 15, 000.


No direct experience ... but I have seen posts where people say their FI works this way and other say their FI is increasing the withholding tax as the repeated withdrawals put them through the threshold amounts.

It seems that some FIs have updated their technology for the total withdrawals instead of blanket applying the lower withholding amount.


Cheers


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## RBull (Jan 20, 2013)

twa2w said:


> Not quite true. If you make a withdrawal under 5000 from your RSP, there will be withholding tax of 10%
> 
> But if you make one large withdrawal of over 15,000, then you will have 30% with held.
> 
> ...


The rate on multiple small withdrawals seems to depend on the policy by broker. There have been numerous people on here report their bank broker has looked at the cummulative YTD total of their withdrawals and taxed subsequent ones based on this. Seems strange to me. Cant recall which broker - TD?, BMO? My experience at RBCDI is different and is consistant with what you're said. Multiple 5K withdrawals are taxed at 10%.

RE the OP's question. I have done numerous in kind RRSP withdrawals to both TFSA and to unregistered. The FMV & size of withdrawal pre tax was set using the bid price of the stock at that time. I needed to have the cash in RRSP to pay the withholding tax portion.


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