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Published November 23, 2022

What You Should Know About RRSP Withdrawals

You can withdraw from your registered retirement savings plan at any time, but withdrawals made before you turn 71 can lead to significant penalties.

Funding a registered retirement savings plan (RRSP) is a solid option when you’re preparing for retirement.

But that money will need to be withdrawn at some point, possibly before your RRSP fully matures.

It’s important to understand how RRSP withdrawals work, because depending on when you access your money, you could wind up paying a steep early withdrawal tax — a penalty we’re happy to help you avoid if possible.

When can you withdraw money from an RRSP?

Your RRSP matures the year you turn 71, but you can make a withdrawal at any time before the end of that year so long as you’re not investing in a locked-in RRSP (also called a locked-in retirement account, or LIRA), which can only be used for retirement income.

Accessing your RRSP funds can be unavoidable, but there can be severe tax implications for early withdrawals.

» Make the most of your savings:10 RRSP benefits you shouldn’t ignore

How much tax will you pay on early RRSP withdrawals?

The amount of tax you pay on early RRSP withdrawals depends on the province where you reside and the amount you take out. The current tax rates on RRSP withdrawals are:

  • 10% on withdrawals up to $5,000 (5% in Quebec).
  • 20% on withdrawals between $5,001-$15,000 (10% in Quebec).
  • 25% on withdrawals of any amount for non-residents of Canada.
  • 30% on withdrawals over $15,000 (15% in Quebec).

The money you withdraw from your RRSP also will be added to your taxable income for the year, which could lead to a higher tax bill. Because the penalties involved can considerably reduce your retirement savings potential, making an early withdrawal from your RRSP should not be your first option.

» See our picks:The best high-interest RRSPs in Canada

Avoiding taxes on your  RRSP withdrawals

There are very few instances where you can withdraw money from your RRSP and not be penalized:

  • If you’re eligible for the Home Buyer’s Plan (HBP), you can withdraw up to a maximum of $35,000 from your RRSP to be put toward the purchase of your first home. And if you are buying the home with a partner, you can both take advantage of the HBP and withdraw a total of $70,000 to use as a down payment.
  • If you’re eligible for the Lifelong Learning Plan (LLP), you can withdraw a maximum of $20,000 from your RRSP and put it toward training or education for yourself and/or a partner or spouse at a recognized educational institution.

There is a catch, however. The money you withdraw from your RRSP for either of these programs has to be returned. You’ll have 15 years to replenish the funds used for the HBP and 10 years for those used for the LLP.

Another general strategy for avoiding heavy taxes on your RRSP is to let it mature. Once you turn 71, you can transfer it to a registered retirement income fund. The income you receive from your RIFF will be taxable, but you won’t be walloped with any early withdrawal penalties.

If there’s a portion of your retirement savings that you want to keep accessible, consider putting it into a tax-free savings account. You can make unlimited withdrawals from a TFSA without incurring any tax penalties. Any gains realized by the investments held in a TFSA are completely tax-free, too.

» MORE:Is Canada’s Registered Disability Savings Plan (RDSP) right for you? 

FAQs

    • How can I withdraw from my RRSP without paying tax?

      Unless you’re using some of your RRSP funds to buy a home (through the Home Buyers Plan) or for education (under the Lifelong Learning Plan), you’ll have to pay tax when you withdraw from your RRSP. Otherwise, you can let it mature and transfer it to a RRIF when you’re 71.

    • What happens when I withdraw from an RRSP?

      When you withdraw from your RRSP, your financial institution will withhold an additional amount, known as a withholding fee, and remit it to the government. You’ll receive a T4 RRSP form that details the funds you withdraw during the year. That amount must be reported on line 12900 of your income tax return for the year the withdrawals were made.

About the Authors

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the editor and senior writer for four publications, including the leading website for the country’s mortgage industry, Mortgage Broker News. Clay has written 30,000-word examinations of Canada’s real estate investment market, interviewed the industry’s most powerful leaders and analysts, and has helped choose both the nation’s top realtors and mortgage brokers. He is based in Toronto, Ontario.

Hannah Logan

Hannah Logan is a writer and blogger who specializes in personal finance and travel. You can follow her personal travel blog EatSleepBreatheTravel.com or find her on Instagram @hannahlogan21.

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