Transferring RRSP Assets
Because a Registered Retirement Savings Plan is an income tax deferred structure that is governed by a formal trust arrangement, strict rules must be followed when moving assets between, into, and out of RRSP accounts. By following these strict rules, individuals will ensure the RRSP assets remain sheltered from inclusion in the annuitant’s income (for income tax purposes) when they are transferred between accounts.
RRSP transfers fall into one of three categories:
- between RRSPs
- from an RRSP into a non-RRSP account type
- from non-RRSP account types into an RRSP
Each of these three types of transfer categories is explored below.
Transfer of assets between RRSPs
A transfer of RRSP assets from one RRSP account to another RRSP account is the most common type of transfer and it is accomplished by visiting the receiving financial institution and completing the Canada Revenue Agency’s (CRA) Form T2033 – Direct Transfer Under Subsection 146.3(14.1) Or Paragraph 146(16)(a) or 146.3(2)e. By completing and signing this form you are giving the receiving financial institution instructions to transfer RRSP assets held at another financial institution.
When completing the transfer form you will need to supply information about the transferring financial institution (name, address, RRSP Plan number), your name, address, social insurance number, and the type of transfer (RRSP to RRSP), the amount to be transferred (a specific dollar amount or “All” of the account’s assets) and whether you want the transfer to be made in the form of Cash, in kind, or any combination of the two. A Cash transfer will instruct the transferring institution to sell all of the account’s assets and send/transfer the cash proceeds. An in kind transfer will instruct the transferring institution to transfer the assets as they are, where nothing is to be sold.
The CRA requires that the transfer of RRSP assets occur directly between financial institutions, thus the RRSP assets remain sheltered from income tax, and the T2033 Direct Transfer form makes this possible.
When transferring assets you should understand that the RRSP type at the transferring and receiving financial institutions is an important consideration for the transfer to be successful, namely:
- If the type of RRSP at the receiving financial institution is identical to the RRSP type at the transferring financial institution then the transfer should be successful. For example, transferring an Individual RRSP into an Individual RRSP is fine. But you will not be able to transfer a Spousal RRSP into an Individual RRSP (even though transferring an Individual RRSP into a Spousal RRSP is possible, with the resulting combined RRSP designated as a Spousal RRSP).
- Transferring a Self-Directed RRSP into a Regular RRSP is not possible because the assets held in a Self-Directed RRSP may not be compatible with investment restrictions for a Regular RRSP. But transferring assets held in a Regular RRSP to a Self-Directed RRSP may be possible.
- Before attempting to transfer RRSP assets check with the receiving financial institution to ensure they can accept and administer the transferred asset. For example, mortgages, mortgage investment corporations, and some mutual funds may not be acceptable to the receiving institution. In addition, some RRSP investments are considered to be proprietary to the transferring financial institution and, thus, non-transferable.
Typically, when transferring RRSP assets you will incur transfer fees and possibly investment sales or redemption fees, so you should ask about these before you complete the transfer form.
Under special circumstances, such as relationship breakdown – Separation or Divorce and the death of the plan’s annuitant, the CRA does permit otherwise restricted transfers to be accomplished. (For additional details, see our section, Death, Divorce, and Bankruptcy.)
Transfer of assets from an RRSP into a non-RRSP account type
Transferring RRSP assets into a Registered Retirement Income Fund (RRIF) is the most common of these types of transfer. Most commonly done when an RRSP account matures, that is when the RRSP annuitant reaches 71 years of age, and the CRA requires that the RRSP be converted to an annuity or an RRIF. There is no requirement that an annuitant wait until age 71 before transferring the RRSP assets into either of these two options.
For example, many people will transfer all or a portion of their RRSP assets into either an annuity or RRIF at a younger age as they retire and begin using their savings to supplement their pension income. In some cases, people that retire without a pension income that qualifies for the yearly $2,000 Pension Income Tax Credit will convert a portion of their RRSP assets into an annuity or RRIF. This is because the withdrawals from either of these plans qualifies as Pension Income enabling the annuitant to claim the $2,000.00 Pension Income Tax Credit.
In addition people will also transfer their RRSP into an annuity or RRIF prior to maturity so that they can take advantage of the Pension Income Splitting with a spouse. For taxation years after 2006, you can transfer to your spouse or common-law partner up to 50% of your Eligible Pension Income. If you are 65 years of age or older at the end of the taxation year, all of your pension income is eligible for splitting. If you are younger than 65, only pension income that qualifies for the $2,000 Pension Credit is eligible income for the purposes of income splitting. For example, payments from the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), Old Age Security (OAS) and payments from certain Retirement Compensation Arrangements (RCA) are not eligible.
To initiate a transfer from an RRSP account to an RRIF or annuity, obtain the necessary transfer forms from the receiving financial institution. For transferring assets from an RRSP into an RRIF you will need to complete a T2033- Direct Transfer form.
In addition to transferring RRSP assets into an RRIF plan, you can also transfer assets from an unmatured RRSP, tax-free, into a Registered Pension Plan (RPP). Often members of an RPP can transfer RRSP assets into their employer’s Registered Pension Plan to “purchase” additional pension credits. Members of an RPP can contact the Human Resources staff to enquire if this is an option.
Note: Typically, when transferring RRSP assets you will incur transfer fees and possibly investment sales or redemption fees, so you should ask about these before you complete the transfer form.
Transfer of assets from non-RRSP account types into an RRSP
There are a number of possible transfers from non-RRSP account types into an RRSP plan.
For example, some direct transfers include the following:
- transfers from a Registered Retirement Income Fund (RRIF)
- transfers from a deceased annuitant’s RRSP
- transfers from a Registered Pension Plan
Transfers of assets from an RRIF into an RRSP are possible provided the RRSP is unmatured. There are instances where you may desire to supplement your pension income by taking regular payments from your registered savings and thereby you decide to transfer your RRSP into an RRIF. Then at a future date you receive an inheritance and as a result you no longer need to withdraw money from your registered account. Provided that you are 71 years of age or younger, you can transfer your RRIF assets back into an RRSP and thereby begin to defer registered income payments until a future date.
To transfer your RRIF back into an RRSP you would obtain and complete a T2033 Direct Transfer form from the receiving financial institution.
Transfers from a deceased annuitant’s RRSP directly to a surviving spouse’s RRSP can be facilitated completing a beneficiary designation in the account’s documentation. By completing the beneficiary designation you can direct that a portion or all of the RRSP assets be transferred directly into the surviving spouse’s RRSP. Upon death of an annuitant, the normal restrictions on transferring Spousal RRSPs into an Individual RRSP are relaxed.
Transfers from a Registered Pension Plan (RPP) into an RRSP are possible upon marriage or common-law relationship breakdown, death or termination of employment. Your employer’s human resources or payroll department will provide you with the plan’s information and the necessary documents to initiate the transfer.
Some examples of possible indirect transfers include the following:
- contribution of funds received as a Retiring Allowance
- lump-sum payments received from a Foreign Pension Plan
- lump-sum payment received from a United States Individual Retirement Account (IRA)
- amounts received from the RRSP of a deceased spouse, or in some cases, a parent or grandparent
- the “cost amount” of shares you receive in a special lump-sum payment from a Deferred Profit Sharing Plan (DPSP)
- the Accumulated Income Payments (AIP), also called the investment earnings, from a Registered Education Savings Plan (RESP) provided you are the original subscriber or the spouse/common-law partner of a deceased original subscriber. There are certain criteria that must be met to qualify for this transfer. Effectively, the withdrawal of the AIP from the RESP provides the funds for a contribution to your RRSP, which helps to avoid the increased 20% income tax burden on the withdrawal of the AIP. (See our RESP section for more details.)
- transferring RRSP assets through instructions in your will can still result in a deceased’s RRSP assets transferred to a surviving spouse or common-law partner. (See our section Designating a Beneficiary.)