When you can withdraw money from your RRSP
As long as your RRSP 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 yourRRSP 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.
Withdrawing money from your RRSP without paying taxes
If you’rebuying your first home or paying for your educationyou may be able to take funds from your RRSP without paying withholding tax or including the funds in your income.
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 RRSP 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.
What can you put in an RRSP?
Don’t let the term ‘savings’ plan limit you. Canada Life offers these investment opportunities:
Withdrawing RRSP money at retirement
You can keep contributing to your RRSP 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 RRSP. 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 RRSP. 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 RRSP and passed to the CRA. The rate depends on how much you withdraw and the province where you live.
FAQs
When you can withdraw money from your RRSP. As long as your RRSP 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).
Can I withdraw my RRSP if I leave Canada? ›
If you have an RRSP and you move out of Canada permanently, you can either choose to: Make a lump sum withdrawal and deregister your RRSP. You'll have to pay withholding tax and income tax on the amount withdrawn. Keep your RRSP and have your investments grow tax-deferred for Canadian tax purposes.
Can you withdraw from RRSP before 65? ›
You can take money out of your RRSP before you retire. For example, you might tap into your RRSP to cover costs of an emergency situation. But you will pay an immediate tax on the money you take out, and possibly more at tax time. And you'll permanently lose the contribution room.
How do you withdraw money from an RRSP? ›
How to withdraw money from an RRSP
- Check if your RRSP is locked-in. Before withdrawing, determine if your RRSP is locked-in, as withdrawals from a locked-in RRSP are generally restricted. ...
- Decide on the withdrawal amount. ...
- Understand the tax implications. ...
- Request the withdrawal. ...
- Report the withdrawal on your taxes.
In Canada, the current withholding tax rates for withdrawing funds from an RRSP are as follows: 10% on amounts up-to $5,000; 20% on amounts over $5,000 up-to and including $15,000; and. 30% on amounts over $15,000.
What are the disadvantages of RRSP withdrawal? ›
But early withdrawals can come at a cost.
- What happens when you withdraw money from your RRSP early?
- You'll miss out on the advantages of compound interest.
- You'll have to pay tax on your RRSP withdrawals.
- You'll permanently lose RRSP contribution room.
- What can you do if you need emergency funds?
Contrary to popular belief, you are not required to deregister your RRSP/RRIF upon ceasing Canadian residency. You have the option to keep your RRSP/RRIF intact and have the income continue to grow tax-deferred for Canadian tax purposes.
Can I withdraw from RRSP as a non-resident? ›
Non-residents of Canada can also make contributions to an RRSP. When making a withdrawal, non-residents are taxed at a flat rate of 25%. If you convert your RRSP into a Registered Retirement Income Fund (RRIF), you can withdraw your funds as periodic pension payments.
What happens to RRSP when you leave company Canada? ›
The money in your Group RRSP stays with you, not your employer. If you leave your employer, your money can be: transferred to your own individual RRSP (or RRIF if you want to be receiving immediate income and if you are eligible to transfer to a RRIF.
Should I move money from RRSP to TFSA? ›
If you now find yourself in a lower tax bracket, such as when on maternity leave, and made RRSP contributions in the past, you may want to consider withdrawing from your RRSP to make a TFSA contribution. However, remember that funds withdrawn from your RRSP can't be re-contributed later.
When do you start making repayments? You have up to 15 years to repay to your registered retirement savings plan (RRSP), pooled registered pension plan (PRPP) or specified pension plan (SPP) the amounts you withdrew from your RRSP under the Home Buyers' Plan (HBP).
What happens to RRSP when you retire? ›
At any age up to the end of the year you turn 71, you can choose one of the following options for your RRSPs: You can transfer your RRSP funds to a registered retirement income fund (RRIF). Starting in the year after the year you establish a RRIF, you have to be paid a yearly minimum amount.
Can I keep my RRSP if I leave Canada? ›
Our response: Canadian citizens that have become non-residents can continue to hold RRSPs after leaving Canada.
What is the best strategy for RRSP withdrawal? ›
Strategy: Deferring withdrawals as long as possible is popular for good reason. However, for large RRSPs, drawing earlier may be a better tax strategy. That's because a large RRSP means large mandatory RRIF withdrawals, and you could end up paying more tax than if you drew on it over the years.
Is there a penalty for withdrawing from an RRSP? ›
The RRSP is an awesome savings tool to help you reduce your tax bill and save for retirement. But it can also help you buy your first home, pay for your education, or top-up your income if you've lost your job. There's no penalty for accessing your RRSP funds early other than paying taxes on the amount withdrawn.
What is the 3 year rule for spousal RRSP withdrawal? ›
Spousal RRSPs come with a three-year attribution rule, which only permits withdrawals three years after the deposit date. So, for example, if you deposit funds into a spousal RRSP on January 1, 2024, your spouse or common-law partner won't be able to withdraw the funds until January 1, 2027.
How can I avoid RRSP over contribution penalty? ›
How to get the penalty waived
- Monitor your CRA MyAccount and pay special attention to your RRSP contribution limit and annual Notice of Assessment.
- Track your RRSP contributions from all sources monthly.
- If you notice an over-contribution withdraw the amount immediately and reach out to the CRA for assistance.
In the year you turn 71 years old, you have to choose one of the following options for your RRSPs: withdraw them. transfer them to a RRIF. use them to purchase an annuity.
