A reader recently told me she has a good dividend-paying stock and would like to move part of it into a TFSA, where she has accumulated a few years of contribution room, placing the remainder in her self-directed RRSP, to which hasn’t contributed for years. Her intention is to reinvest the money back into the same company, but under both the TFSA and the RRSP umbrellas, and she wants to know if this is a sensible move. She’s 60 years old and drawing a pension. Her spouse won’t retire for another five years, and they manage well with their combined incomes for now. It’s actually a fairly common question.
For starters, you don’t have to sell the stock to make the transfers. You can contribute it in kind, assuming you have self-directed plans.
If you move the stock into either plan, it will be deemed a taxable event by the Canada Revenue Agency, and you will be taxed on any capital gain. The same will apply if you sell the shares. You should take that into account before you act.
If you decide to proceed, your dividends and capital gains will be fully sheltered in the TFSA. The RRSP will give you a tax deduction when you contribute, but you’ll be taxed at your marginal rate when you make any withdrawals, including on the original contribution.
Courtesy Fundata Canada Inc. © 2017.Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder andThe Income Investor newsletters, available through his BuildingWealth.ca website. This article is not intended as personalized advice.
