RRSP assets are not frozen

Contrary to a widely-held belief, the assets inside an RRSP are not frozen. They can be moved out with any tax penalty, as long as they are replaced by something of equal value. The process is called switching.

For example, if you have a lot of stocks in your RRSP and would like to move them into a non-registered portfolio, you can do so. You simply arrange to transfer cash or an equivalent value in interest-bearing securities, like bonds, into the RRSP in their place. There are forms to fill out, of course, but it is perfectly legal. Just one word of warning.

If the assets you transfer into the RRSP have a capital gain or accrued interest at the time of the switch, you are deemed to have sold them and must declare the gain or interest on that year’s tax return.

From 6 Steps to $1 Million, a new book by Gordon Pape, published by Prentice Hall Canada.