Caricature of human holding their mobile device with a mobile device on either side of them with coins flowing between the two like a rainbow over their head

RRSP transfers explained: Moving your RRSP to your spouse, FHSA or a new bank

Money.ca / Money.ca

Sandy Yong

By Sandy Yong

🗓️

Updated: November 18, 2024

Partners on this page provide us earnings.

We go through different stages in life that shift our financial priorities. So, when it comes to managing retirement savings, there may be an occasion when Canadians may need to transfer funds from a Registered Retirement Savings Plan (RRSP) to another account. 

As a result, understanding the importance of RRSP transfers is essential to avoid tax consequences and optimize our investments. Whether consolidating multiple accounts, moving funds to other registered accounts, or switching to another bank, this article will guide you through everything you need to know about the process of RRSP transfers. 

What is an RRSP transfer?

An RRSP transfer is the process of moving money from one RRSP account to another type of account. There are a few reasons why people may decide to transfer their RRSP. For example, they want to lower their fees, get access to better investment options or consolidate several accounts into one. 

However, before proceeding with the transfer process, it’s essential to understand the options available to avoid potential tax consequences that may result from improper withdrawals. 

Types of RRSP transfers

There are several ways to conduct the RRSP transfer. Here are the three types to be aware of: 

In-kind transfers involve moving investments, such as stocks or ETFs, without selling them. This type of transfer is beneficial because it allows you to hold onto your investments without triggering possible capital gains taxes when you sell the funds.

In-cash transfers require liquidating assets to move the cash balance to a different account. This is often for a new investment strategy or a more comprehensive selection of investment options offered by a different financial institution.

A partial transfer is when you move only a portion of your RRSP to another institution, whereas a full transfer is when you move the entire balance. The option you choose will depend on your needs and financial situation.

How to transfer your RRSP to another bank

You can follow these steps to have a seamless transfer process:

  1. 1.

    Open a new RRSP account:  First, you’ll need to sign up for a new RRSP account at your desired financial institution before you initiate the transfer. You’ll need to gather important information such as your address, social insurance number and the existing RRSP account number.

  2. 2.

    Start the transfer: Once you’ve activated your new RRSP account, you can contact the new financial institution to initiate the transfer. You may do this through your banking app, online account or in person at a local branch.

  3. 3.

    Fill out the required forms: The new financial institution will require you to fill out some forms. They may have their own transfer authorization form or you can complete the  T2033 Form from the Canada Revenue Agency (CRA).1 

The expected timelines can vary from a few business days to six weeks. You’ll also have to be aware of transfer fees that may be charged to you. In some cases, the new financial institution may cover these fees as an incentive to attract new customers.

Related:Best RRSP accounts

Transferring an RRSP to a TFSA

To transfer money from an RRSP to a Tax-Free Savings Account (TFSA), you’ll need to withdraw the money from your RRSP first. Then, you can deposit the funds into your TFSA. However, withdrawing from your RRSP is taxed as income for that year. You can claim the tax withheld from the withdrawal on line 43700 on your tax return. 

As a result, since this type of transfer comes with tax implications, it may only benefit low-income individuals, as they’ll be taxed at a lower marginal tax rate. It may also be used as a last resort if people don’t have access to other funds. 

Related: Best Tax-Free Savings Accounts

Related: Best TFSA investments in Canada 

Transferring an RRSP to an FHSA

For first-time homebuyers, you can transfer RRSP funds to a First Home Savings Account (FHSA). With the FHSA, you can contribute up to $8,000 annually, with a lifetime contribution of $40,000. To start this process, complete Form RC720 and submit it to your financial institution.2

Remember that, if you directly transfer from your RRSPs to your FHSAs, the transfer will reduce your unused FHSA contribution room. 

For example, say in your first year, you have a contribution room of $8,000. You decide to transfer $5,000 from your RRSP to your FHSA. Therefore, your unused contribution room is now $3,000 ($8,000 - $5,000 = $3,000).  

This type of transfer is beneficial as it allows you to directly transfer without any immediate tax consequences as you save for your down payment. However, keep in mind you cannot claim a deduction since it came directly from your RRSP.

How to transfer your RRSP to a spouse

You can transfer an existing, non-spousal RRSP to a spouse under specific conditions. To be eligible, you must be in a situation where you’re separated, divorced or your spouse passes away. 

In these specific scenarios, the transfer can occur on a tax-deferred basis. However, a written separation agreement or court order must state the division of the assets. When transferring an RRSP to a spouse, complete the Form T2220.3

Spousal RRSPs may be a better alternative to transferring directly since they provide unique tax advantages. This type of account is catered towards married or common-law couples and allows one partner to contribute to the other partner’s RRSP. The contributing partner receives a tax deduction, which is most advantageous for couples with a wide income gap.

Transferring an RRSP to a RRIF

When you have an RRSP, it’s important to note that you must transfer it into a Registered Retirement Income Fund (RRIF) before December 31 of the year you turn 71.

The main difference between the RRSP and RRIF is that RRSPs allow tax-deferred growth, while a RRIF requires you to make systematic income withdrawals and contributions can no longer be made. The funds withdrawn from your RRIF will be considered taxable income for the year.

You’ll need to fill out the RRIF application form from your financial institution to initiate the transfer and continue tax deferral.

Common RRSP transfer mistakes to avoid

These are the common mistakes you can avoid when initiating the RRSP transfer: 

  • Withdrawing your funds and paying unnecessary taxes: If you decide to withdraw your RRSP funds instead of transferring them, you will incur a withholding tax, which will be treated as taxable income. 
  • Missing deadlines: You’ll want to ensure you transfer your RRSP to a RRIF before age 71 to avoid any penalties. Also, you’ll want to pay attention to your annual FHSA contribution limits to make the most out of your investments.
  • Ignoring transfer fees:  Understand the fees associated with your transfer and ask if your new institution provides reimbursements. 

FAQ

  • Can I transfer my RRSP to my spouse?

    +

    Typically, you cannot transfer your RRSP to your spouse or common-law partner unless in case of separation, divorce, or death. Under these circumstances, the transfer may occur on a tax-deferred basis, but you’ll need to have a written separation agreement or a court order that outlines the division of property.

  • Can I transfer my RRSP to Wealthsimple or Questrade?

    +

    Yes, most robo-advisors allow you to transfer your RRSP directly without tax penalties. However, check for transfer fees that may be applied from either institution. As always, reading the fine print is vital before proceeding with the transfer.

  • How long does it take to transfer an RRSP to another bank?

    +

    The time it takes to transfer an RRSP to another bank can vary widely depending on the financial institutions involved. It typically takes a few days to 6 weeks, depending on how efficiently they process the transfers.

  • What happens if I withdraw my RRSP instead of transferring it?

    +

    If you withdraw funds from your RRSP instead of transferring them, you will incur a withholding tax (up to 30% based on the amount). Furthermore, the withdrawn amount is taxable income and could push you into a higher tax bracket. This can lead to undesired tax implications, so going this route is generally not advisable.

  • Can I transfer my RRSP to my FHSA tax-free?

    +

    Yes, if you’re a first-time homebuyer, you can transfer funds from your RRSP to a FHSA with no tax implications—if you transfer the money directly. You’re required to fill out Form RC720 to conduct the transfer. Be sure to stay within your FHSA contribution limits to avoid tax consequences.

  • Sources

    +

    1. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2033.html

    2. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc720.html

    3. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2220.html

Sandy Yong Freelance Contributor

Sandy Yong is the author of the award-winning book, The Money Master: Inside Secrets On How To Make Your Money Grow and Stay Safe. She has been featured in the Toronto Star, NBC News and Yahoo! Finance.

Disclaimer

The content provided on Money.ca is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter. Advertisers are not responsible for the content of this site, including any editorials or reviews that may appear on this site. For complete and current information on any advertiser product, please visit their website.