Withdrawing funds from your RRSP

Understand the tax implications of early RRSP withdrawals

RRSPs are effective ways to save for retirement, but making withdrawals from these tax-advantaged plans may impact your tax bill. To make the most of your RRSP, be sure you understand the potential cost of withdrawals.

When to make a withdrawal

You can make a withdrawal from your RRSP any time as long as your funds are not in a locked-in plan. Any money you withdraw, however, is subject to withholding tax, and it will also be included as income when you file your taxes.

In some situations you can withdraw RRSP funds and not trigger a tax bill:

• Home Buyers’ Plan: You can withdraw up to $60,000 tax-free to be used toward purchasing or building a home, with up to 15 years to repay the funds (optional 5-year extended grace period depending on when you took out the funds).
• Lifelong Learning Plan: You can withdraw up to $10,000 within a calendar year to finance full-time training or education for you or your spouse. In this instance, you have up to 10 years to repay the money to your RRSP.

Tax implications to consider

When you withdraw money from your RRSP, the funds are subject to a withholding tax. This means they have to be declared as earned income and will be recorded on a T4RSP by your plan issuer. All RRSP withdrawals are also included in your taxable income.

Understanding the tax implications of withdrawing from your RRSP can help you decide if and when you should. Keep the following in mind:

• You pay withholding tax: How much will vary, depending on the amount withdrawn and your province of residence.
• You pay income tax: Your withdrawals must be reported on your tax return as income. If you make the withdrawal in your peak earning years, you’ll be in a higher tax bracket.
• You lose out on tax-deferred compounding: Because RRSP contributions can compound over time, even a small withdrawal made today can have a big impact on your savings later.
• You lose your contribution room: When you withdraw funds from an RRSP, you permanently lose the contribution room you originally used when depositing the funds.

Talk to us

A BlueShore financial advisor can help you understand the implications of withdrawing from your RRSP early and help you with other options to help you meet your cash needs. Get in touch by calling us us at 604.982.8000 (toll-free 1.888.713.6728), send us a message, or visit a local branch.