I have a large amount of money tied up in shares of the company I work for. I have room in my TFSA and wonder if it is possible to transfer the stock into this account without cashing them first? Also, do you have any tips on negotiating the transfer fees from the full service brokerage to this new one? I know it is time for me to make the move, but I’m a little nervous about it.
Making the move to a discount brokerage can feel like a really big step. I’m not surprised to hear that you’re nervous about it because a lot of people are. But once you get through the paperwork and set up the account I think you’ll find it’s as easy to use. I remember when I set mine up years ago it took some getting used to, but the navigation was intuitive and the call centre folks were helpful. I also learned that it was best to avoid calling at the opening or closing of the stock market as that’s when they tend to be the busiest.
Transferring stock into a TFSA
In terms of your company stock, you don’t have to sell it; you can just transfer those shares directly into your Tax Free Savings Account, provided that it is held within a brokerage. A TFSA at a brokerage allows you to hold all sorts of investments: stocks, ETFs, mutual funds, etc. But be careful if you open this account at a bank. If you set up your TFSA with your bank’s brokerage arm you should be fine, but the version that you set up with a bank teller may have restrictions.
While you can transfer the stocks into your TFSA without selling them first, you could still trigger a tax event. If the stock has gone up in value you will have to pay tax on that gain. Only future gains will be sheltered and able to compound tax-free. However, if you have any capital losses saved up you can use them to offset the gain.
On the other hand, if the stock you want to transfer into your TFSA has fallen in value you cannot claim the loss for tax purposes. In order to claim the loss you’d have to sell the stock outside the TFSA first. But be mindful of the superficial loss rule, which prevents investors from selling a stock to claim a loss and then buying it back in right back. If you sell the stock outside of the TFSA and buy it back within 30-days, the loss will be denied.
Once the stock is moved over, promise me that you’ll take a look and see how much of your total portfolio it represents. You need to diversify out of your company’s stock; failing to do so is a mistake I see all too often. Even if you love your company and believe in its future, it still makes sense to review your exposure and reduce your position over time. If you need anecdotal evidence of how wrong things can go, just think about the pain suffered by employees of Nortel Networks who didn’t sell some of their shares before it came crashing down to earth.
Negotiating transfer fees
Transfer fees are typically charged by the brokerage firm that you are leaving. The fees aren’t huge—typically in the hundred-dollar range—but it is worth asking your new brokerage to reimburse you for them. It is a fairly common practice so it will be less like a negotiation and more like a request. It certainly doesn’t hurt to ask. Ideally you should enquire about fee reimbursements when you’re setting up the account so you have someone to follow up with directly if there is an issue.
Stretch outside your comfort zone
Embracing new habits around money—even just the logistics of it—isn’t easy. In fact, only yesterday I moved to online statements for my bank accounts, line of credit and credit card. That felt like a big step, even though it only took a few clicks and three minutes of my time. Stretching outside of your comfort zone to get a better handle on your money is a good thing in my opinion. It can make a big difference both in terms of your actual results and in terms of how you feel about you money.