Author Topic: Transferring company match in a Taxable Account to a TFSA or RRSP  (Read 1080 times)

Trinitysmom

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Looking for advice, does it make sense to move money from a taxable account to a TFSA or RRSP. The money is an employer match for RRSP contributions and takes 2 years to Vest. Once we have control of the money does it make sense to move it? My husband makes just under $100 000 a year and save about 20% between his defined benefit pension and RRSP each year. He has about $70000 unused RRSP room. The earliest he would retire would be in 13 years and really he would probably just want to work less at that point. The money is invested in Canadian index funds right now. Thanks

Mr. Rich Moose

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #1 on: August 21, 2017, 10:01:58 AM »
Looking for advice, does it make sense to move money from a taxable account to a TFSA or RRSP. The money is an employer match for RRSP contributions and takes 2 years to Vest. Once we have control of the money does it make sense to move it? My husband makes just under $100 000 a year and save about 20% between his defined benefit pension and RRSP each year. He has about $70000 unused RRSP room. The earliest he would retire would be in 13 years and really he would probably just want to work less at that point. The money is invested in Canadian index funds right now. Thanks
It certainly does as long as the investment position in not in a loss. This is very important when transferring "in-kind". If there is a gain on the position, you will have to claim that gain as a capital gain because it's a deemed disposition for tax purposes. If there is a loss on the position, you cannot claim a capital loss.

Generally speaking, it makes sense to fill registered accounts before non-registered accounts. You either don't pay tax on the gains (TFSA), or you defer tax on the gains until withdrawal (RRSP).

It's often worth running a few scenarios using a tax calculator (I like this one: http://www.taxtips.ca/calculators/canadian-tax/canadian-tax-calculator.htm ). It can help you optimize your income mix in retirement and ensure you are maxing the benefit of using RRSPs.
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Stasher

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #2 on: August 22, 2017, 09:22:49 AM »
I moved the money out of my "employee" portion of my company RRSP once every year. I did the simple transfer request form that Scotia iTrade has on their brokerage site and the process was super simple. Our company was at Sunlife and there was no restriction on accessing that "employee" portion. The "employer" portion has to remain until you leave the company. I FIRE'd this past spring and in June transfered all remaining funds into my Scotia index funds.

It is just a transfer of RRSP from one investment company to another so there are no fees or tax implications from the government. You will only incur most likely a $25 service fee from the employers investment company and then a $9 or whatever you rate is for the index fund purchase fee.
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Trinitysmom

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #3 on: August 22, 2017, 02:41:41 PM »
Thanks for answering Mr. Rich Moose and Stasher, the money is with Manulife and they have confirmed I can move the money as it vests from the taxable account that it's originally put in over to a RRSP or TFSA. We have already paid tax on the money received in the year the match was given. So I guess I need to run some numbers to figure out which account makes more sense.

Stasher

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #4 on: August 22, 2017, 02:49:58 PM »
It is already in an RRSP so transfer over to your couch potato index fund portfolio which I assume is your plan.
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Trinitysmom

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #5 on: August 23, 2017, 08:27:24 AM »
That's the thing the company match goes into a taxable account not an RRSP. But as it vests and we get control I can move it. I'm just not sure what is better TFSA  or RRSP.

Mr. Rich Moose

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #6 on: August 23, 2017, 06:38:29 PM »
That's the thing the company match goes into a taxable account not an RRSP. But as it vests and we get control I can move it. I'm just not sure what is better TFSA  or RRSP.
It sounds like he is already contributing to a RRSP. Given that, it probably makes sense to start filling up the TFSAs with the transfer money.
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Goldielocks

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #7 on: September 01, 2017, 03:39:42 PM »
Looking for advice, does it make sense to move money from a taxable account to a TFSA or RRSP. The money is an employer match for RRSP contributions and takes 2 years to Vest. Once we have control of the money does it make sense to move it? My husband makes just under $100 000 a year and save about 20% between his defined benefit pension and RRSP each year. He has about $70000 unused RRSP room. The earliest he would retire would be in 13 years and really he would probably just want to work less at that point. The money is invested in Canadian index funds right now. Thanks

It is very unusual to have an employer match on RRSP contributions NOT go into the same RRSP account.   Can you double check?

I had an employee stock purchase plan, which had a matching component.   Upon set up, I could choose to keep it taxable, or wrap it in an RRSP.   Whichever I chose was also where the match went.   In this case, I did NOT want to have so much company stock, so I claimed the amount that was vested each year and moved it into my own accounts (RRSP, TFSA or taxable, depending), for diversification.

The only reason to move money from a company group RRSP or taxable account, to your own RRSP or taxable account, is because you do not like the fees or the choices available to you.   Some group plans for very large companies actually have a better return, because there is less churning in the account, and there is no cost to rebalancing (no $7 trading fees) and the management fees are small.   (typical of some group pension type plans with an RRSP component). Others have 2% management fees. So look at your returns net of fees, and then decide.

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Moving taxable money to an RRSP or TFSA makes a lot of sense.

With the amount of room that you have, I would move it to the RRSP, and just defer claiming all of it for tax deductions until a future year when you have high income.  (you can do that). Use it in future years to keep your taxable income on your return  (adjusted gross minus RRSP contributions and Pension Adjustment) under $85k (province dependent where the exact limit is) which has a 31% to 38% marginal tax rate. The amount grows tax-free in the meantime.  You do need to have the RRSP room available, but it is just a notation on your tax return of how much of it you want applied to the current year's taxes, and the rest can be carried over.

I also love the TFSA..   Definitely fill up the TFSA before you have a taxable account because it works just the same EXCEPT everything is not taxed.   The only disadvantages are 1) if you have a net loss, you can not claim it against other income, so keep away from the penny stocks and speculation.  2) You don't get to claim foreign dividend tax credit, which for most of us is quite small impact on our portfolios, and far, far, outweighed by the tax-free growth you will have for the next 20 years.   Once you have maxed your TFSA and are starting a taxable account, you can choose what to put where for optimization.

The TFSA is not considered income when you tap it, which is lovely if you are faced with OAS clawbacks (due to a generous pension, perhaps, if you want to pull $40k cash for a car, pulling it from the TFSA will not impact your OAS calculation).   So, you want your TFSA to be as large as possible when you retire, and your RRSP + CPP + Pension to generate no more than $145k /year or so, for two people splitting it... especially after you are 65.   




Trinitysmom

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Re: Transferring company match in a Taxable Account to a TFSA or RRSP
« Reply #8 on: September 06, 2017, 01:18:09 PM »
Hi Goldielocks,
We have the choice of where to put our part of the 8% that gets matched we can do RRSP, TFSA or taxable account. The pension contribution takes up 12% of our RRSP room every year so we would not be able to put the full 8% into RRSP if we didn't have space from previous years. I think that's why the match goes into a taxable account so you don't end up over contributing to your RRSPs.