Taxes 2025 Key Considerations Before Transferring Your RRSP for a Bonus

As the cost of living continues to rise across Canada, many Canadians are facing tough choices when it comes to their finances, with some having to reduce or delay contributions to their Registered Retirement Savings Plans (RRSP). According to a recent survey by Edward Jones Canada, 10% of the 1,528 participants reported that they are unable to invest in their RRSPs this year due to financial constraints. In light of this, many financial institutions and brokerages are offering attractive bonuses for Canadians to transfer their RRSPs to new institutions. But is it worth it to take advantage of these promotions? Let’s break down the factors to consider before jumping on board.

Understanding Your Financial Goals and Risk Tolerance

Before deciding to transfer your RRSP to a new financial institution, it’s essential to first consider your own financial goals and risk tolerance. Gaurav Singh, Senior Vice-President of Retail Banking at Tangerine Bank, emphasizes the importance of understanding what you want to achieve with your RRSP and whether the transfer aligns with your long-term objectives. “Having clarity around your goals, whether short-term, medium-term, or long-term, and ensuring they are clearly identified and prioritized is crucial,” Singh said in an interview with Yahoo Finance Canada.

Another key aspect is risk tolerance. Not all institutions offer the same range of investment options, and the wrong choice could expose you to risks that don’t align with your comfort level. If the institution’s offerings do not match your risk profile, even a tempting transfer bonus might not be worth it in the long run.

Looking Beyond the Bonus: The Bigger Picture

While a large transfer bonus can be attractive, there are other factors to take into account that could affect the overall benefit of the move. According to Singh, it’s important to examine the complete picture when considering a transfer. This means reviewing the fine print of the offer, including any potential fees for buying and selling investments after the transfer, as well as any currency fees if you’re investing outside of Canada.

Singh also advises looking at the broader range of services the competing institution offers, not just the RRSP benefits. “Do they offer products like exchange-traded funds (ETFs)? Are they providing solutions for your non-registered accounts, checking accounts, or savings accounts with competitive interest rates?” he asks. Ensuring that the institution can meet all your financial needs, not just RRSP-related, is a key consideration.

RRSP Transfer Bonuses: A Smart Move for DIY Investors?

Brenda Hiscock, a financial planner at Objective Financial Partners, offers a similar perspective, especially for those managing their investments independently. While she acknowledges that RRSP transfer bonuses can be a good option for DIY investors, she cautions against chasing every promotion. “I don’t recommend, as a general rule, chasing promotions… but I think once in a while, there are some promotions that do work well,” Hiscock says.

She also highlights that DIY investors should be mindful of the types of assets they currently hold in their accounts. If an institution doesn’t allow the transfer of specific assets—like ETFs, stocks, or bonds—this could create complications or additional costs, making the promotion less worthwhile. It’s essential to ensure that your assets can be transferred smoothly and at minimal cost.

The Fine Print: Transfer Fees and Bonus Caps

Before jumping into an RRSP transfer, it’s critical to dive deep into the details of the offer, especially regarding any hidden fees. One of the most important aspects to check is whether the institution you’re transferring to will cover transfer fees, which can typically cost around $150 per account. If the institution doesn’t cover these fees, you’ll need to determine whether the transfer bonus is worth more than the cost of the transfer.

Additionally, some institutions impose caps on how much bonus money you can receive depending on the amount of assets you’re transferring. For example, Wealthsimple is currently offering a 2% transfer bonus, but the catch is that the bonus is paid out over two years. This means that while you might get some immediate financial relief, you won’t be able to use that bonus for contributions to your RRSP for the 2024 tax year.

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Final Thoughts Weighing the Trade-Offs

In conclusion, while RRSP transfer bonuses can seem enticing, they are not always the best option for every investor. It’s important to take a step back and evaluate the full range of factors involved, including your financial goals, risk tolerance, and the overall offerings of the institution. While it’s tempting to chase promotions, especially in times of financial strain, ensuring that the transfer is in alignment with your long-term objectives and will not incur excessive costs is crucial.

For those who are managing their own investments, RRSP transfer bonuses might offer a worthwhile opportunity, but for those with advisors, it’s important to carefully consider whether the bonus outweighs any potential risks or complications. Whatever the case, knowing the fine print and making sure your goals are clearly defined is the key to making the most out of any offer.