I want to buy U.S. stocks in my RRSP. I'm planning well ahead but I want to know a few things before I do go ahead. I am 40 years old and I know that I will have to convert it to a RIF when I'm 71. If I own a U.S.-traded stock and it pays a dividend, will I get U.S. dollars? When I convert to a RIF do I have to sell my U.S. stocks? Can I take out U.S. money or stocks if I want to de-register any money?
You are certainly planning ahead. Just like the restriction on foreign content that was removed in 2005, the current RRSP rules can change between now and when you turn 71, but I will answer you with today's rules.
When you buy a U.S.-traded stock, your existing Canadian dollars are converted at the current exchange rate. The stock can be held in a Canadian dollar RRSP account so you can value it with your other holdings in Canadian dollars. Some institutions do have U.S.-dollar-denominated RRSPs and the stock can be held there. This is advantageous when you want to sell the stock and buy another U.S. stock. That way you are not converting between the two currencies unnecessarily and losing on the exchange each time.
When a U.S. stock pays a dividend and you hold it in a U.S. currency account it will stay in U.S. dollars. This is another benefit to holding all your U.S.-traded stocks in a U.S. currency RRSP. Note that only U.S.-based company dividends that are held in an account deemed for retirement purposes are exempt from the non-residency withholding tax.
When you have to convert your RRSP into a RIF account all the holdings remain as they are. There is no need to sell any holdings nor to convert them to Canadian dollars first and then back to US.
As for withdrawing any funds or stocks that are U.S.-dollar denominated, at present that is at the discretion of the financial institution you have your RRSP/RIF with. Maybe this will be one of the things that will become more readily available in the future.
As I mentioned at the beginning of my answer, the current rules and conditions of an RRSP may change. Yes, you should plan for the future but it is difficult to predict how the rules will change.
Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to email@example.com. You can send your questions to firstname.lastname@example.org as well.