# Collect Monthly Dividends From RRSP?



## prollywrong (Dec 17, 2010)

I'd like to begin assembling a dividend paying portfolio, and am wondering if I can collect monthly dividends from equities held in a self-directed (discount brokerage) RRSP without tax consequences or penalties or general massive and time-consuming complication? 

For example, if I hold US dividend paying companies in my RRSP, and want to collect whatever dividends they provide, will I be taxed on the amount collected if the original contribution amount remains untouched? 

If this is possible I'd like to put both the tax refund and the dividends paid out toward the mortgage for the next five years, then set up a DRIP.


----------



## MoneyGal (Apr 24, 2009)

No es posible! You can't get a deduction going in and not get taxed on the way out. CRA doesn't care about the source of the income coming out; it's all taxed as ordinary income. Doesn't even matter what "massive and time-consuming calculation" you might want to perform; there's no way around this one.


----------



## prollywrong (Dec 17, 2010)

Thanks for the reply, MoneyGal. 

It might still make sense for me to withdraw the dividends and be taxed on them at my rate: I have zero income (stay at home parent) and it's a spousal RRSP with the contributions coming from my spouse's salary. 

Now to find out how heavily a few grand in annual dividend payments will be taxed if pulled from an RRSP by someone with no income...


----------



## Charlie (May 20, 2011)

If it's a spousal RRSP and your spouse contributed in last 3 yrs, the income goes to the contributing spouse. So, no dice again I'm afraid, until three yrs pass from spouses last contribution to your RRSP. 

(and the income source -- dividend/gain/interest etc -- is totally irrelevant within the RRSP).

If funds have been in 3+ yrs and no additional contributions to any spousal RRSP in that time, your effective family rate on a withdrawal is about 21%, the value of the 'lost' spousal credit -- or higher if it affects child tax benefits etc.


----------



## MoneyGal (Apr 24, 2009)

If you want income now, then why are you trying to get it out of an RRSP? Do an interspousal loan (borrow money from your husband at the prescribed rate) and set up your own portfolio under your own name. Note! As Charlie said, there are overall tax consequences as a family you should be aware of.


----------



## prollywrong (Dec 17, 2010)

Thanks again for the replies. 

I'm not trying to get money OUT of the RRSP; it's not in there yet. 

I have cash that I would like to invest in dividend paying equities and was thinking about using it to max out my wife's contributions to our spousal RRSP over the next four-five years (she's the single earner, I'm the stay at home father), then turn around and apply both the refund and the dividends collected to our mortgage.

Sounds like it may be best to forego the RRSP contributions for now and just max out both of our TFSA's with the dividend paying equities. Bummer about losing the refund, over a few years it really adds up.


----------



## MoneyGal (Apr 24, 2009)

I apologize for jumping to the stay-at-home wife conclusion! 

You don't necessarily have to give up on the refund...if you are saying that "over a few years it really adds up" -- you can figure out which plan of action will give you more of what you want on an after-tax basis. Good luck!


----------



## Eclectic12 (Oct 20, 2010)

prollywrong said:


> Thanks again for the replies.
> I'm not trying to get money OUT of the RRSP; it's not in there yet ...
> 
> Sounds like it may be best to forego the RRSP contributions for now and just max out both of our TFSA's with the dividend paying equities. Bummer about losing the refund, over a few years it really adds up.


Part of the factors to consider is what mortgage rate are you paying now? When will it change? What are the limits on the pre-payment options?

If the current mortgage rate is low and locked in for a while - then IMO, the RRSP will make sense in the long run. Though I personally wouldn't pull money out of the RRSP.

Instead I would:
a) contribute to the RRSP to buy whatever investment you like and get a tax refund.
b) contribute the tax refund money to a TFSA that allows buying the dividend paying stocks.

There will be a smaller amount in the TFSA as it is the refund money but the dividends can be to pay down the mortgage, without any taxes. If one of the stock makes a nice capital gain, it can also be sold and withdrawn to put against the mortgage, also tax free. It is not quite "having your cake and eating" but close enough.

If the mortgage rate is high at the moment (ex. 6%), I'd put all the money against the mortgage until a lower rate is in effect.


Just my thoughts for you to consider ...


Cheers


----------



## MoneyGal (Apr 24, 2009)

The tax rate (giving rise to the tax refund) is also a factor!


----------



## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> The tax rate (giving rise to the tax refund) is also a factor!


True ... I sometimes forget as I'm in a higher rate just on income, before adding in overtime or other sources of income such as investments.


Cheers


----------



## MoneyGal (Apr 24, 2009)

it is all good! 

Here's the way to think about this, from my POV: "How can I grow my family's wealth / increase my family's income in the most tax-efficient way?" That's really the question that's being asked here, I think, if you think through it. 

Now, the answer -- "it depends." On what? On your tax rates, sources of income, and investment strategy (i.e., capital gains vs. dividends vs. interest income, in tax-deferred, taxable or non-taxable accounts), as well as some assumptions you make about how your investments will perform.


----------

