Have you ever considered how to move your RRSP to a different financial institution? This is a valid inquiry for those contemplating a switch. Some individuals prefer to consolidate their financial affairs with a single bank, while others may be frustrated with excessive fees or subpar returns from their current financial provider.
Initially, the process of transferring your Registered Retirement Savings Plan may seem daunting. If approached incorrectly, you risk triggering tax consequences by making withdrawals, and it’s likely you’ll incur closure fees. However, moving your Registered Retirement Savings Plan to a new provider is actually a straightforward procedure. Generally, all it entails is signing a single form with your new financial institution, and they will manage the transfer for you. It’s that simple!
Steps to Transfer Your RRSP
- Establish a new RRSP with another financial institution or discount brokerage
- Complete the necessary paperwork and authorize the new institution to request your RRSP transfer
- Decide between an in-kind transfer or a cash transfer
- Initiate the transfer process
- Wait for the funds to be received by your new institution
To successfully transfer your RRSP to a different financial institution or discount brokerage, simply fill out the authorization forms needed for the fund transfer. While this may seem straightforward, there are several preparatory steps you should take.
To start, retrieve your most recent investment statement to provide to the new institution. They will want to know if you prefer to transfer your investments “in kind” (which means moving them as they are, when feasible) or if you want to liquidate your investments so you can reinvest the cash. A cash transfer is necessary if your new financial institution does not offer the same investment options as your previous one, whereby you will sell your old investments at their market value and then reinvest the proceeds in new options at your new institution.
This choice between in-kind or cash transfer is crucial. Since the new financial institution is handling the transfer from your old RRSP to your new one, no taxes will apply. This means you cannot withdraw the funds yourself and then redeposit them; instead, adhere to the specific transfer protocol. Failing to do so could invoke withholding taxes that would affect your tax return.
Your former institution may not be pleased once a transfer is initiated, but there’s little they can do at that point. They might impose a transfer fee, which is typically outlined on their website. Fortunately, the receiving institution often waives this fee—be sure to inquire about it before completing your transaction.
The transfer process can take time, so be proactive in asking your new institution for expected arrival dates of the funds. Keep an eye on your account; if your money hasn’t arrived by the indicated time, make sure to follow up, as delays from the previous institution aren’t unheard of.
Once the funds are deposited into your new account, you can commence investing. Alternatively, your new institution may start investing on your behalf. Be aware of the RRSP contribution deadlines if you want to make the transfers smoothly: you typically have 60 days from the start of the year, but transfers can take several weeks to finalize.
Importantly, as you are merely transferring existing funds, your available RRSP contribution room is irrelevant, as you are not adding new money to your RRSP, eliminating the need to track your remaining contribution capacity.
Is a Transfer the Right Move for You?
Individuals contemplating the transfer of their RRSP (or any investments) are usually dissatisfied with their current management. However, switching solely due to underwhelming investment performance may not be advisable. Markets are unpredictable, and it’s often better to adhere to your investment strategy—assuming you have one.
Switching financial institutions to reduce your management expense ratio (MER) can often yield significant benefits. For instance, if you are currently paying a MER of 2.5% on a mutual fund, switching to an all-in-one ETF could lower your MER to below 0.50%, translating to substantial savings over time.
Questrade markets itself on lower fees, making it a worthwhile option to consider for a switch. However, be cautious—changing providers due to short-term performance may not be wise. The market fluctuates, so it’s essential to follow your investment strategy unless your current investments consistently lag behind market averages.
Another scenario necessitating an RRSP transfer is when changing jobs. If you were part of a group savings plan, you would lose access once you leave the company, requiring a transfer of your funds—this can be done swiftly as a lump sum.
Keep in mind that if you intend to move your Registered Pension Plan (RPP) into your RRSP or convert your RRSP into a Registered Retirement Income Fund (RRIF), the process involves additional paperwork and considerations. When leaving a job with a defined benefit pension plan, your plan administrator will furnish you with options regarding your funds. The amount you can move to your RRSP or RRIF will depend on several factors, including your years of service, a specific formula determining your pension income, and your available contribution room. The documentation you receive upon leaving should clarify any uncertainties.
Timing Your Transfer
If you’ve made the decision to switch, there’s no reason to procrastinate. Avoid attempting to time the market; instead, stick to your investment strategy.
Potential fees associated with transferring could cause hesitation. Some mutual funds include deferred sales charges, which deduct a percentage from your portfolio upon transfer. While these fees are inconvenient, the long-term savings from a lower MER could outweigh the short-term costs. Note that DSC fees have been eliminated in Canada, so they are less of a concern now.
If you are moving out of an employer plan, there may be a specific deadline by which to transfer, so it’s prudent not to delay.
Before proceeding, determine where you will move your funds. Are you considering a robo-advisor for a hassle-free, low-cost management option? Platforms like Justwealth and Wealthsimple offer attractive incentives for new users. Robo-advisors are known for their transparency and low maintenance requirements.
Some individuals prefer to manage their finances independently, which demands a certain level of knowledge. Though it may seem intimidating, anyone can learn to manage their finances effectively with the right guidance.
When Not to Transfer Your RRSP
There are circumstances where you might choose not to transfer your RRSP, or may even be prohibited from doing so.
If your employer has an RRSP matching program or offers a group rate for investments, you may be bound to keep your funds with a designated institution. While it may seem inconvenient, the advantages of receiving matching contributions or lower-cost investment access can outweigh the downsides.
As previously mentioned, do not switch simply because of temporary dissatisfaction with performance. I made a similar mistake years ago and ended up with an advisor who placed me in overpriced mutual funds.
Lastly, if you have recently acquired investments with a holding period, it’s best to avoid moving them immediately. Wait until the holding period concludes to sidestep additional fees. For instance, if you are utilizing the Home Buyers Plan, funds must remain in your RRSP for a minimum of 90 days to qualify. If you urgently need these funds, it’s wiser to leave them untouched.
Conclusion
Transferring your RRSP to a different financial institution is straightforward; ensure you are making the switch for the right reasons. Once you decide, take the necessary time to confirm that the new arrangement meets your needs, preventing the potential need for future switches. Additionally, if you’re considering moving your TFSA to another institution, the process is similar but includes a few different options.