Avoiding RRSP transfer fees | GIC discussions | Discussion forum

Actually, it does apply to TFSA accounts. The difference is that you can usually just take the money out of the TFSA and deposit it elsewhere the next year if you want to avoid transfer fees.

The short answer is that they do this because they can.
They can charge whatever the market will put up with.
The only rule that remotely relates to this that I know of is that there is a kind of gentleman's agreement that transfers shouldn't take more than X weeks. I forget the exact time frame, maybe six weeks? But they flagrantly disregard that when it suits them, no matter how high the fee. Therefore it can't be regarded as a fee for service; it's just a fee to make money. the FIs that charge a fee will tell you it's an onerous job to transfer an RSP and takes great gobs of time. Maybe it does; maybe it doesn't; maybe they are just slow/incompetent or understaffed. How would you know? In any event, I consider it a cost of doing business, not something they should charge for.

As far as I know, there are only two ways to avoid it.
The first is the one you have indicated. Plan ahead and make sure the new FI will cover the fee. Generally, they will cover fees as high as there own or close to it. They won't do it unless you ask. Those FIs that don't charge a fee will not reimburse, which is only reasonable.
Second, avoid FIs that charge a transfer fee. There aren't very many of them, however. Hubert, Peoples Trust/Bank, Oaken and Achieva come to mind. Tangerine (formerly ING Direct) didn't used to charge a fee, but since they were acquired by Scotia, a fee has been added.
A fee is punitive. But all they have to do is give you a competitive rate and you likely wont transfer; that they refuse to do, so you decide to move your money, and for that you are punished.

I try to follow a combination of approaches. My first choice is an FI that doesn't charge. I mostly use Hubert for that. But i also use some where the fee would either be reimbursed or the rate is good enough to justify it. Thirdly, I am cashing out what are now RIFs as fast as tax efficiency allows so that I can be rid of them, their fees, their rules, and their lingering tax obligations (which could increase).

Free transfers-out of registered funds are never included in any banking package, no matter how expensive it may be.

Bear in mind too that fees can increase during the course of your GIC. If you have enough business with the FI in question, you might be able to argue your way out of it but that is doubtful since the whole exercise is about moving money out, not in.

Back when I bought my first RSP in the 1970s, the transfer fee was only $25.

Well, most don't take six weeks, although they are slower in "RSP season". That said, some take months and months , especially investment accounts.
Spouse got the fee waived when TDDI took several months to get it done and couldn't provide any reasonable excuse.

Yes, it can be very difficult to do if you are trying to fit into the tax bracket that ends this year at about $46,000 (check taxtips.ca for BC combined rates) and you have accumulated significant RSPs.
I've been trying to get rid of ours for about six years, but it isn't going as fast as hoped as spouse keeps earning money in retirement. We would have been better off without the darn things.

The next major issue, with increased income, is the OAS clawback, which effectively adds 15 percentage points to your marginal rate when it kicks in. It's the "reward" you get for being a saver and not a big spender or getting into debt. Those who spent their money don't have to worry about OAS clawbacks.

I agree; do the RIF withdrawals while you have both of you to share the income. It can be split, as you probably know.
If you both have RSPs, then one of you is going to inherit what's left of the other's, which can make it almost impossible to decumulate efficiently.

If your paying those type of xfer fees must be dealing with a big major bank. Motive will cover $50 on your first ever xfer in from another institution. When you deal with smaller firms that have no policy you can ask. Duca paid half my $50 xfer when I asked. $25 buys my Timmy’s for two wks:). EQBank charged me zero xfer ing out my rrsp, you get a note saying no charges as no fees means no fees but kindly remember us next time you need rrsp.

It's true that a couple with incomes that qualify for OAS clawback don't "need" that money. On the other hand, OAS clawback is based solely on net income. Net income can be inflated if your income takes you just into next bracket and you decide to top it up from RIFs. OAS is not subject to clawback due to taking out a HELOC or reverse mortgage on an expensive home either. And of course the folks who spent a lot on overseas vacations over the years got to enjoy both the vacations and the OAS if they no longer have enough assets to generate the income to be clawed back. It's a problematic system.

Dividends, if outside of registered plans, are tricky from a tax perspective because of the gross-up, which affects net income. This in turn affects the Age Amount tax credit, OAS clawback, Medical Expenses tax credit, possibly health insurance fee (depends on province). There are other forum members who probably know more about this than I do.

As well, the ~54% is the gross tax and not the net tax.

If one had been deducting the RRSP contributions and receiving, let's say, 40% tax refunds from the deductions because one was in the 40% tax bracket, then 40% of the RRSP was from taxes refunded and only 60% was from taxpayer's pocket.

Later on, if the government wants 54% of the RRSP back, then 40% out the 54% would be from taxes refunded and investment growth thereof. The remaining 54% - 40% = 14% would from taxpayer's pocket and investment growth thereof.

So, the net tax would be just 14% / 60% = 23.3% on the taxpayer's out of pocket funds and their investment growth.

A successful equity investor would have a return around 7% per annum. Over 20 years that would have quadrupled the RRSP. So, 3/4 of the 60% would be gains.

If the 14% encroachment is allocated to the 3/4 of 60% as tax on gains, the tax on gains would be

14% / (3/4 * 60%) = 0.3111 = 31.11%

and the 1/4 of 60%, the taxpayers out of pocket money, would be returned tax free.

Norman1, not sure I'm following the first part, your 23.3% calculation.

Say I contribute $100 to my RRSP and that generates a refund of $40, so the net cost to me is $60. Years later when it comes time to withdraw the money it's grown to $200. Thus the 54% tax on that is $108, leaving me with $92 after tax. How do you get to 23.3% net tax rate?

Norman1 said
Initially, we have the following:

Bill	Tax Refund	Total
$60	$40	$100

Later, we have the following:

Bill	Tax Refund	Total
$120	$80	$200

Now, government wants 54% of $200 = $108 back.

$80 of the $108 is repayment of tax refund and gains thereon.

Remaining $108 - $80 = $28 of $108 is tax on your $120 after tax and gains thereon.

$28 / $120 = 0.233 = 23.3%

Unfortunately, if you "only" doubled the RRSP before collapsing it, the tax on the gains is

$28 / (1/2 x $120) = 0.467 = 46.7%   

Its 23.3% only cuz the tax refund portion of $40 that grows to $80, 100% of that goes to the govt....