Investing

Can You Buy Stocks Using Your RRSP?

By Kanwal Sarai
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Investing_woman_questionYes, you can buy individual stocks within your RRSP. Take advantage of the benefits of having an RRSP, and any employer matching contributions while taking charge of your own retirement money. Plus you can avoid the high fees mutual funds typically charge.

A Registered Retirement Savings Plan (RRSP) is an account that provides tax benefits for saving for retirement in Canada. Any money that you put into your RRSP reduces your taxable income by the same amount; therefore your income taxes will be reduced. Another benefit is all your investments within an RRSP account grow tax deferred. In other words, any profits made on your investments within an RRSP account in the form of interest, dividends, or capital gains are not taxable until you withdraw the money. In theory income tends to be lower in retirement so when you do withdraw money from your RRSP account, you will have to pay lower taxes on that income.

How do you actually go about using your RRSP money to purchase individual stocks? Here are 4 simple steps:

  1. Open an online discount brokerage RRSP trading account. You can easily create an account at any major bank.
  2. Deposit any money that you were planning to put into your RRSP into this newly created brokerage RRSP trading account.
  3. Or transfer any money from an existing mutual fund RRSP account into this newly created brokerage RRSP account. You will not incur any income taxes because you are transferring money from one RRSP account into another RRSP account.
  4. Now you are all set to purchase stocks, remember to stick with quality undervalued stocks. For more information be sure to read my “Top 3 Tips for Successful Investing”.

What about company RRSP matching contributions?

Not a problem, simply open a standard RRSP account with your employer’s choice of financial institution, but instead of buying mutual funds just park the money into a money market fund.  Every paycheck, your RRSP contribution (along with your employer’s matching contribution) will go into the standard company RRSP account. At the end of the year or every 6 months transfer the money into your own RRSP trading account. Before sure to first check with your company, regarding their vesting period. At some companys the matching contribution will vest right away or after 6 or 12 months. Once the vesting period is over you are free to also transfer the company’s matching contribution into your RRSP trading account.

Investing for yourself by yourself really isn’t difficult, risky, or time consuming. You simply have to have the knowledge on how to invest responsibly, and how to avoid making mistakes. Don’t speculate, invest. I can show you how.

ps: For our American readers, you can use a traditional deductible IRA or a Roth IRA to hold individual stocks.

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Kanwal Sarai

With more than 27 years of investing experience and a passion for investing and teaching, I demystify the world of investing. My goal is to help you grow your net worth by investing in quality dividend paying stocks. Build your own stream of increasing income today.

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Showing 2 comments
  • chris bruneau
    Reply

    Am I able to transfer my RRSP investment into stocks of a fledgling company? If so, how much and would I incur a penalty?

  • Kanwal Sarai
    Reply

    Is this a public company? If so, you can open an RRSP trading account, move your RRSP money into the RRSP trading account and then buy shares in the public company without incurring any taxes. Check with your current institution to see if they charge a fee to transfer your money to another RRSP account, some places won't charge anything, some will charge a nominal fee.

    If you are considering taking money outside of your RRSP account to buy stocks, then you will be charged a 10% withholding tax for amounts up to and including $5000 (in Quebec the withholding tax is 21%). Plus the amount you take out will be added to your income when you file you taxes, and based on your tax bracket you will have to pay a certain amount of tax on that income. Again check with your current institution to see if they charge a fee for taking your money out of an RRSP account, some places won't charge anything, some will charge a nominal fee.

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