Making "in kind"
withdrawals from an RRSP or a RRIF
An "in kind" withdrawal can be made from a
registered retirement savings plan (RRSP), or from a registered retirement
income fund (RRIF). A withdrawal of investments can be transferred to a non-registered
account, or they could be transferred to a tax-free savings account
(TFSA),
subject to the amount of contribution room available.
When an in kind withdrawal is done, you may have some leeway
in determining the exact amount recorded for the withdrawal. If you
request the withdrawal at the end of a trading day, you can choose a price for
the investment, ranging from the lowest price at which the investment traded to
the highest price traded during the day. If the investment is traded on a
US stock exchange, an exchange rate must be applied to convert the transaction
to Canadian dollars. The exchange rate will be the rate that the brokerage
would have applied if you had sold the stock.
If your request for the in kind withdrawal is not done at the
end of a trading day, the price used for the transfer will be the closing price
of the investment from the previous day.
RRSP in kind withdrawals
When an in kind withdrawal is made from an RRSP, the RRSP lump sum withholding tax rates apply.
For example, if you want to withdraw $15,000, the tax amount will be 20% x
$15,000, or $3,000. The net amount of the withdrawal after tax is
$12,000. This means you would be able to transfer out investments with a
current market value of $12,000. If you request a transfer of investments
of more than $12,000, the total including tax increases to more than
$15,000. This would result in a withholding tax rate increase to 30%.
The total amount of the withdrawal, which includes the amount of the withholding
tax (a total of $15,000 in the above example), will be
included in the taxpayer's taxable income for the year.
In order to do the transfer out of investments, your
RRSP must have sufficient cash to pay the withholding tax. You may
have to sell some investments in order to have the cash on hand. The
sale of investments usually takes 3 days to settle, after which you can do
your "in kind" withdrawal.
