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I'd like to move my self-directed RRSP account from one institution to another. My current broker charges the common $125 for transfer out using the T2033.

To avoid this fee, I'm considering liquidating the assets, closing the account (which is free), and having the money essentially withdrawn from the RRSP. Subsequently, I'd deposit the proceeds into the new account. This method would trigger a withholding tax as well as a T4RSP from my current broker. I'm nowhere near retirement and the amount that I'm talking about is less than $5000. At tax time, I'd be able to negate the effects of the additional income from the RRSP withdrawal with a deduction from the new RRSP deposit.

Is my understanding correct? Are there any other penalties or fees associated with early withdrawal from RRSP? Thanks.

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When you withdraw from your RRSP, you lose that contribution room and you will never get it back.

Let's say you have room to contribute a total of $50,000 to RRSPs. If you withdraw $5000 from one institution and deposit it in another, you will now have a total contribution room of $45,000. This will only matter to you if you hope to max out your RRSP contributions sometime in your life, of course, but almost everyone should be aiming for this.

Otherwise, you are correct. Your extra income will be mitigated by your immediate recontribution to your RRSP.

Note that there are two circumstances where withdrawing from your RRSP does not reduce your contribution limit. The home-buyers plan lets you withdraw up to $25,000 to buy a home. You have to repay this over no more than 15 years. The second is the Lifelong Learning Plan, which lets you withdraw up to $20,000 (up to $10,000 annually), to be repaid over a 10-year period.

Any other withdrawals (or failure to repay under the HBP or LLP) will lower your RRSP contribution room.

In summary, it's almost certainly worth paying the $125 fee unless you are certain you will not be maxing out your RRSP contributions in your lifetime.

  • +1 and also for mentioning the HBP and LLP as alternatives. Special cases, but they complete the picture. – Chris W. Rea Jun 7 '13 at 16:16
  • Ah yes, I had forgotten about that contribution room issue. Perfect answer, thanks. – fideli Jun 7 '13 at 16:26
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You've mostly got it figured out, but there are a couple of more points to consider:

  • You'll be permanently losing a corresponding amount of your RRSP contribution room allowance, because the re-deposit of your funds into the new RRSP would count as a new contribution, the way you're proposing to things.

    For a small amount, it might not matter much, and if you're like a lot of people, you may have more accumulated RRSP room than you can reasonably use up.

  • There may be complications if spousal contributions were made into your account during the previous three years.

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