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June 23, 2015 - I Need Some Money: Should I Withdraw from my RRSP?

You’ve been socking money away in your RRSP like everyone says you should, planning ahead for your retirement. Good for you! Then along comes an unexpected expense and you’re tempted to withdraw some of those retirement funds early. Here are some things to think about if you’re considering doing this:

  • All income you earn on investments within the RRSP is tax exempt as long as the funds remain in the plan so your nest egg can grow faster. As soon as the money comes out, however, the tax man comes a-knocking to the tune of about 30% -- depending on what your salary is and what tax bracket you fall into.
  • There are two situations where you can access the money in your RRSP without penalty – although you do have to repay the funds you withdraw within a specific timeframe. The first is the Home Buyers Plan and the second is the Lifelong Learning Plan.
  • Under the first plan, each spouse may withdraw up to $25,000 from an RRSP for which they are the contributor, assuming each qualifies for the plan. The money borrowed from an RRSP under the Home Buyers' Plan has to be repaid over a period of no more than 15 years.
  • The Lifelong Learning Plan allows you to withdraw a total of $20,000 from your RRSP over four years to pay for your or your spouse’s education. However, the most that can be taken out in one calendar year is $ 10,000. The funds may be used to finance the full-time program you or your spouse at a qualifying educational institution and you then have 10 years to repay it.
  • If you’re considering withdrawing funds to repay debt, it’s better to find a different way to pay down those loans. The power of the RRSP is the compound interest earned with each year that passes and the tax benefits that it offers. If you tap into them before retirement you will be losing a ton of those dollars to taxes and, likely, missed opportunity.
  • There are some technicalities to these withdrawals that go beyond the scope of this discussion. If you’re considering withdrawing from your RRSP before retirement, please talk to your tax consultant.

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