# What to do with group RRSP?



## Gandharva (Jul 14, 2010)

I have a group RRSP with my employer. Each paycheck they take 2% and match it with 2% to buy company shares. Over the last 9 years this has added up to $31,000 worth of stock. The tax deduction is good, but I am wondering if it is smart to be holding that much stock? Is there a strategy I should be following, other than what I have been doing which has been to just ignore it?  If I withdraw I get taxed at the source and also have to declare the income.

I recently read David Trahair's books and I'm feeling rather averse to stocks now. I also have a plan to be debt-free in about 4 years if all goes well (using all excess income towards my readvancable mortgage and using the HELOC for expenses, paying it down to zero monthly). David's philosophy is to pay off all debt, even the mortgage, before bothering to spending another dime on RRSPs. Then once debt-free to make massive investments in safe RRSP instruments. 

I'm tempted to withdraw the full amount to pay down debt and then begin investing in safer instruments later. Would that be a dumb move? I'm 34 years old, so still have time to make up the difference using his strategy.


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## slacker (Mar 8, 2010)

You should find out from your company (HR) whether you can sell the stock in your RRSP. This will NOT trigger a taxable event because it stays within RRSP. Also find out whether you can transfer those stocks (or cash) out into you own RRSP account at say TD or Questrade.

None of these moves will trigger a taxable event.


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## HaroldCrump (Jun 10, 2009)

Gandharva said:


> I recently read David Trahair's books and I'm feeling rather averse to stocks now. I also have a plan to be debt-free in about 4 years if all goes well (using all excess income towards my readvancable mortgage and using the HELOC for expenses, paying it down to zero monthly). David's philosophy is to pay off all debt, even the mortgage, before bothering to spending another dime on RRSPs. Then once debt-free to make massive investments in safe RRSP instruments.
> 
> I'm tempted to withdraw the full amount to pay down debt and then begin investing in safer instruments later. Would that be a dumb move? I'm 34 years old, so still have time to make up the difference using his strategy.


Don't go about changing your investment/retirement strategy with every new book that you read.
David's a good writer and he means well.
But his latest book ("Enough Bull", which I assume you are referring to) has more shock value than any new content.
It seems like a reaction to the 2008 stock market crash.
His previous book(s) contain the same information, but are better balanced.

GICs have a place in portfolios, depending on your risk tolerance but to invest only in GIC, esp. for extended periods of low yields, like we are at now, will erode your investment value.
Even a conservative dividend investing strategy will beat GIC returns these days.


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## andrewf (Mar 1, 2010)

Sell if you can, but enrolling in the program was probably the right thing to do. Worst case, you can take a job elsewhere.


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## Guest (Nov 16, 2010)

Only you can do the math on which is better ... keep the stocks/RSP if they're doing well or pay down debt. I've cashed in RSPs in the past to pay down debt ... an RSP is imo just a saving account that gives me some tax back in hand to use as I choose ... e.g. pay down debt 

Dunno why people don't see it as both ... e.g. RSP savings with cash back to e.g. pay down debt.

If you decide to cash in, this might be a good time to do it, by that I mean withdraw $15K this tax year (2010) and the remaining $16K next tax year (jan 2012).


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## CanadianCapitalist (Mar 31, 2009)

Gandharva said:


> I have a group RRSP with my employer. Each paycheck they take 2% and match it with 2% to buy company shares. Over the last 9 years this has added up to $31,000 worth of stock. The tax deduction is good, but I am wondering if it is smart to be holding that much stock? Is there a strategy I should be following, other than what I have been doing which has been to just ignore it?  If I withdraw I get taxed at the source and also have to declare the income.
> 
> I recently read David Trahair's books and I'm feeling rather averse to stocks now. I also have a plan to be debt-free in about 4 years if all goes well (using all excess income towards my readvancable mortgage and using the HELOC for expenses, paying it down to zero monthly). David's philosophy is to pay off all debt, even the mortgage, before bothering to spending another dime on RRSPs. Then once debt-free to make massive investments in safe RRSP instruments.
> 
> I'm tempted to withdraw the full amount to pay down debt and then begin investing in safer instruments later. Would that be a dumb move? I'm 34 years old, so still have time to make up the difference using his strategy.


First you should check if there are any restrictions on your Group RRSP. Can you sell your company stock? Are you allow to transfer (not withdraw) the account to another institution? What investment options are available in your Group RRSP other than your company stock?

In general, it is not a great idea to keep a big chunk of your net worth riding on your employer. It is also not great idea to dramatically change your financial plans based on every book you read. Unless you are in dire financial straits, withdrawing from a RRSP is typically a bad move. You'll incur taxes that you could have deferred and you lose contribution room permanently.


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## Gandharva (Jul 14, 2010)

The program does allow me to transfer to an other institution, so I assume I could do that and then sell the stock to invest in something else, all still under the RRSP umbrella.

I agree that David's books are a tad extreme based on reviews I've read around the net, but I really didn't have any strategy at all other than putting savings in a high interest account, plus a TFSA, and the group RRSP that has quietly been in the background. So I liked his overall approach and paying down debt makes a lot of sense to me. The idea of not leaving any idle cash around was the big 
a-ha for me when I read into the all-in-one account idea and comparing with using a readvancable mortgage (I have Scotia STEP).

I guess I'll have to think about withdrawing or not. I'm not in dire straights, but a chunk of cash to help pay for student loans and my wedding sounds good. Something to think about.


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## humble_pie (Jun 7, 2009)

gandharva you are announcing your wedding here on this forum same day as the prince & kate.

congratulations to all. May good fortune follow you all the days of your lives.

you have excellent suggestions from CC. Not a good idea to WD from rrsp. Perhaps you could regard it as your wedding gift to yourself.

in particular, not a good idea to accumulate an rrsp full of the employer's shares. Too much of your financial well-being now depends upon this one employer.

there was a thread about this some time ago. The most efficient poster had a system going whereby he'd wait for the employer's contributed shares to vest - i forget whether it was one year or two - and then he'd move the shares for that particular year out to an outside self-directed rrsp with a broker. And there he'd purchase securities in another sector entirely. I suppose he had to pay a fee for the annual transfer of shares, but imho gaining that broad-based security would be worth a small fee.


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## OhGreatGuru (May 24, 2009)

Ther are a whole bunch of issues tied up in your question.

1. If this is invested only in your company's stock it is not diversified, and it is high risk to have your pension invested in the company you work for.

2. Find out if the RSP can invest in other instruments, and whether or not you have a choice of asset allocations.

3. if you can transfer to another instituion, I suspect it would be in cash, not in kind. Are you actually allowed to take out the employer's contribution? But in any case make sure it is an institution-to-institution transfer so the money is not actually withdrawn from an RRSP. The receiving institution will have teh appropriate paper work.

5.Saving 2% of your salary is not a large contribution rate towards your retirement. I would keep it up.


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## HaroldCrump (Jun 10, 2009)

Do you get a discount when buying your company's shares inside the RRSP?
How big is the discount?


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## Eclectic12 (Oct 20, 2010)

OhGreatGuru said:


> Ther are a whole bunch of issues tied up in your question.
> 
> [ .... ]
> 
> ...


First off, the points I've removed for space purposes are good points well presented and a lot shorter than what I attempted to write.

As for point 3, why are you thinking it would have to be cash? Presumably the company stock is listed on an exchange so there shouldn't be a technical reason it can't be transfered "in-kind".

The bigger item, IMHO would be the employers contribution. I suspect it might have to be transfered to a Locked In Retirement Account (LIRA). It's bit more paperwork, can sometimes be delayed by not having the proper info but can be done.

My experience is with a Defined Benefit (DB) pension plan. The prescribed contributions had to be transferred to a LIRA (I chose self-directed so I could choose the investments). There were excess contributions that I could have withdrawn, subject to regular tax (i.e. no excessive withholding tax) or transfer to a regular RRSP (which I did).

A defined contribution plan (DC), as this sounds like it is, may require the whole amount to go to a LIRA but maybe not.


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## Eclectic12 (Oct 20, 2010)

@Gandharva

Re: Group RRSP all in one stock through employer, in company stock
Is it smart to be holding that much stock? 

Others have responded with good points about the features of the RRSP, transfers "in-kind" or cash to another institution RRSP with no tax, so I won't rehash them. 

A couple of other items to consider:

a) Is this RRSP the only RRSP? If so, it's status is tied to *one* stock.
If the stock is at a large gain, it's probably a good time to move some
of the profits into other stocks or more conservative investments.
I've read of too many who were happy to stick with their company stock
as "it only goes up" - only to discover too late that the stock crashed.

As my uncle used to say, "you might lose some profit by selling early
but you can never lose selling for a profit".

Note that if you are not comfortable picking particular stocks at the 
moment, an index Exchange Traded Fund (ETF) is an option. Or if you
think the markets might drop but are not sure, part in an ETF and part
in a money market fund until you are find a stock/ETF to buy would 
help give you flexibility to see where the market is headed.


b) Based on the way the questions are framed, I'm not sure you are aware
of the features of an RRSP. An RRSP is a tax deferral plan. When you
contribute, you give up capital losses and the cheaper capital gain tax
for the ability to have the full amount of the gains to grow without taxes.

When you withdraw, you pay the same tax as income/interest which is 
more than the capital gain tax - even if you invest in stocks. Then too,
extra withholding tax is held, unless you file extra paperwork to prove 
you won't be owing tax later.

So unless the mortgage has an absurdly high rate and/or you are 
desperate for money, I doubt it makes sense to give up the tax free
growth.


Re: I recently read David Trahair's books ... David's philosophy is to pay off all debt, even the mortgage, before bothering to spending another dime on RRSPs. Then once debt-free to make massive investments in safe RRSP instruments. 

Paying off debt is good. It certainly helps me sleep easier when the markets are volatile knowing I don't have a lot of debt and won't be forced to panic sell as I need the money. Part of the evaluation to me is what are you paying in mortgage interest versus what the tax free growth in the RRSP could be.

Also - if you have the cash flow and plan to do it without withdrawing from the RRSP - why add to taxes and cut your RRSP growth?


Re: I also have a plan to be debt-free in about 4 years if all goes well (using all excess income towards my readvancable mortgage and using the HELOC for expenses, paying it down to zero monthly). 

This doesn't make sense to me. 

With this strategy, both your mortgage and the HELOC are not taxable deductible interest (those lucky Americans with a tax-deductible mortgage!). Why not use the HELOC to borrow for investments that pay income? The investment income can help pay the mortgage down, the interest on the money used for the investments is tax deductible - giving you more money from your income to put against the mortgage.

If you keep your eye out for buying opportunities such as I was able to during the last market crash, it's easy to be comfortable with a HELOC debt that the investments have rebounded to being just short of 2x HELOC debt. 

I also spread my risk around a couple of different types of investments. Some have 4% dividend with a capital gain when I sell. Some were riskier and didn't pay anything for six months but for the last year plus have paid out 38% with a capital gain when I sell.


In any case, regardless of what you decide, it's good that you are investigating your options. My best advice is to make sure you understand the strategy and how it works. IMHO, it's the only way to be able to protect yourself.


Cheers


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## Gandharva (Jul 14, 2010)

All, 

I just checked and the group plan allows me to transfer in cash or in kind. 
There are no other allocation choices in the group plan.
There is no discount on the stock purchase price.
I am entitled to the entire amount, including employer contributions.

I don't think using my HELOC to invest is a good idea for me at this point since I am very novice and don't want to risk the roof over my head. Maybe later.

My idea then is to transfer in cash to an ING RRSP savings account and then buy GICs and Streetwise mutual funds - which are ETFs at 1% MER. I know there are cheaper ones out there but then there are fees added back on later. So I like the ING one stop shopping idea. Gotta keep it simple to start with. This way I am diversified and won't incur taxes by withdrawing...assuming I don't do something silly. 

Sound reasonable?


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## CanadianCapitalist (Mar 31, 2009)

Gandharva said:


> All,
> 
> I just checked and the group plan allows me to transfer in cash or in kind.
> There are no other allocation choices in the group plan.
> ...


Yep. It does. Make sure you pick a fund with an asset allocation that suits you. If you pick an aggressive fund, you should realize that the values will fluctuate quite a bit.


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## Four Pillars (Apr 5, 2009)

Gandharva said:


> All,
> 
> I just checked and the group plan allows me to transfer in cash or in kind.
> There are no other allocation choices in the group plan.
> ...


You should really consider the TD e-funds over Streetwise. Pretty much the same product for half the price. And there are no "fees added back on later".


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## HaroldCrump (Jun 10, 2009)

I second the vote for TD eSeries funds instead of ING Streetwise.
I also draw your attention to the TD Monthly Income mutual fund as a relatively safe, long standing, income producing investment.


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## Eclectic12 (Oct 20, 2010)

Gandharva said:


> All,
> 
> [ ... ]
> 
> ...


If you aren't ready ... then that's fine - use the time to learn as much as you can. 

I'm not clear on what you intend to do with the stock in your existing Group RRSP. I suspect this is your biggest risk at this point.


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## Gandharva (Jul 14, 2010)

Eclectic12 said:


> If you aren't ready ... then that's fine - use the time to learn as much as you can.
> 
> I'm not clear on what you intend to do with the stock in your existing Group RRSP. I suspect this is your biggest risk at this point.


I'm selling them and transferring the proceeds into an ING RRSP savings account so that I can buy GICs and Streetwise funds. (I know TD e-series is cheaper but I just want the simplicity for now until I am more comfortable.)


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