Assets in RRSPs can be transferred on a tax-deferral or tax-free basis in these specific circumstances
Many clients are not aware they can transfer funds in their existing RRSPs for pension buybacks offered by their workplace defined-benefit pension plans.Some clients worry that transferring funds from a registered retirement savings plan will result in an automatic tax trigger. But that’s not necessarily the case in certain situations.
When clients come back to work, they can “buy back” a period of service not funded to increase their pensions. Ms. Koskamp notes clients are often strapped for cash to fund a buyback, especially new parents getting accustomed to child care expenses and other big-ticket items for the family. In theory, she notes the client could contribute to their RRSP, get the tax refund and then use that money for a pension buyback. However, the buyback must be later than the RRSP deadline of March 1 to be effective.
“They’ll still come up with a past service pension adjustment to preclude you from contributing to your RRSP for a period of time until you’ve used up that past service pension adjustment,” he says.Transferring assets from an RRSP can also occur in the case of a marital breakdown. Mr. Burnie says a couple often needs to equalize their assets to meet the terms of their separate agreements.
“It’s just a deferred transfer. When they withdraw the money eventually, it’ll be taxed as it normally would be,” Mr. Burnie says. Mr. Burnie also notes that a deceased parent’s RRSP can be rolled over into a financially dependent child’s registered disability savings plan if the child qualifies for the disability tax credit. The maximum lifetime contribution limit for an RDSP, including rollovers, is $200,000, and any amounts already contributed or rolled over reduce this limit. The rollover is tax-deferred but does not attract government grants or bonds.
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