A Registered Retirement Savings Plan is a solid method of ensuring your future security and, depending on the type you have, it may also pay you a dividend through the year.
Receiving a dividend through an RRSP is, generally, tax-exempt as long as your funds remain in the plan, but if for some reason you wish to withdraw your funds, the landscape changes severely. By retaining your original investment, you avoid losing money.
That means it is certainly advisable to keep any original investments you have in an RRSP, dividend stock or otherwise. An RRSP withdrawal can incur heavy tax penalties, which only serves to cost you money in the long run. As the purpose of investing is to ensure long-term security and, in the cases of dividend stock, a regular income, it is nonsensical to remove the funds unless in a dire emergency.
However, what happens if you want to purchase US stocks, should they be kept in or out of an RRSP? US stocks are an important part of any functioning portfolio, but they do incur tax implication which are worth considering when you first enter the market. Widely speaking, US stocks that pay dividends are taxed as regular income. Therefore, the dividend would be fully taxed, and you would not get the full benefit of your investment.
In this instance, it would be preferable to hold those stocks in an RRSP, rather than a taxable account because the dividend would then be, generally, tax-exempt. Again, if you were to withdraw from the fund then you would be taxed and usually any RRSP withdrawals are taxed at a variable rate which can be anywhere between 10% and 30%.
There is a caveat to this rule; much depends on the type of stock you wish to hold. If you are investing in small-cap stock, you may want to place them in a taxable account instead. That is because there is a chance they will suffer a capital loss, meaning when you sell you will be doing so at a rate lower than you bought. The loss itself provides no taxable benefit if it is held in a tax-sheltered account, but if it is in a taxable account then it can help you. Any loss incurred in a taxable account can be offset against other capital gains made that year, thus reducing your tax bill.
However, if you are investing for the long haul playing a dividend growth strategy that offers some protection against volatile markets by relying on the growth of the company’s dividend to carry stability, then you will certainly want to consider an RRSP or other tax-sheltered scheme such as an RRIF. These offer you the protection from tax on your dividends, US stocks or otherwise, allowing you to grow your dividend and investment without incurring penalties.
With sensible management of your RRSP, you can ensure a steady income without bringing tax implication into your portfolio. The major problems in terms of tax occur when withdrawing funds, so try to avoid that if possible and your RRSP should continue to work well for you.