RRSP withdrawal rules
When you can withdraw money from your RRSP
As long as your Registered Retirement Savings Plan isn’t a locked-in plan, you can take money out of your RRSP any time.
However, any amount you withdraw will be included as income for tax purposes. You’ll also pay withholding tax on the amount you withdraw (based on the amount of the withdrawal). You’ll also lose the contribution room you originally used to make your Registered Retirement Savings Plan contribution.
For these reasons, and the fact you may be losing out on positive effect of compounding on your investment returns, taking money out of your RRSP before retirement can really impact your savings. It’s best to consult with your advisor before doing so.
RRSP Withdrawal without paying taxes
Home Buyers’ Plan (HBP)
If you meet the Canada Revenue Agency’s (CRA) eligibility rules, you can withdraw up to $35,000 to pay for your first home.
You must re-contrbute the money to your Registered Retirement Savings Plan starting 2 years after you withdraw it, and you have 15 years to pay it all back, or include the amounts in your income. The CRA will send you an annual statement with your balance, payments made and the minimum payments for the next year.
Lifelong Learning Plan (LLP)
To help pay for full-time education or training for you or your spouse or common-law partner, you may withdraw up to $10,000 per year to a lifetime maximum of $20,000 if you meet the criteria.
You have 5 years to begin re-contribute the money back to your RRSP, and 10 years to pay it all back, otherwise it will be included in your income. The CRA will send you an annual statement with your balance, payments made and the minimum payments for the next year.
Withdrawing RRSP money at retirement
You can keep contributing to your Registered Retirement Savings Plan until Dec. 31 of year you turn 71. At the end of that year, you have 3 options to withdraw the money to use for your retirement.
Convert your RRSP to a RRIF
You can convert your RRSP to a registered retirement income fund (RRIF) at any age. However, once your convert it, you can’t change it back to an Registered Retirement Savings Plan.
Once you convert to a RRIF, you can start receiving payments from it. The CRA sets the minimum amount you must withdraw based on your age and a percentage of the market value of the RRIF.
All money withdrawn from a registered account is fully taxable in the year you withdrawn it. You’ll pay no withholding tax on the minimum amount you receive from your RRIF. You will pay withholding tax on RRIF amounts you receive over the minimum.
Purchase an annuity
You can convert your RRSP to an annuity which can provide you with guaranteed income for a specific period of time or the rest of your life.
You won’t pay withholding tax and the money you receive from the annuity is full taxable in the year you receive it.
Lump sum withdrawal
You can withdraw all the money from your Registered Retirement Savings Plan. You’ll pay withholding taxes and the full amount will be included in your income which could result in you paying a large amount of tax.
The RRSP withholding tax
This tax is withheld by your financial institutions when you take money out of your Registered Retirement Savings Plan and passed to the CRA. The rate depends on how much you withdraw and the province where you live.
Now that you know more about withdrawing money from your RRSP, why not meet with your advisor to:
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