Making RRSP Withdrawals: What You Should Know
When can I withdraw from my RRSP?
You can make a withdrawal from your RRSP any time1 as long as your funds are not in a locked-in plan. The withdrawal, however, is subject to withholding tax and the amount also needs to be included as income when filing your taxes.
There are situations in which tax-deferred withdrawals can be made from your RRSP. For instance: If the funds are used for the purchase of a home for the first time through the Home Buyers' Plan or for funding education through the Lifelong Learning Plan. For each scenario, no withholding tax is paid, and the withdrawal will not be considered income (provided the withdrawal is paid back into the RRSP within the applicable timelines).
Withdrawing from an RRSP Before Maturity
- You pay a withholding tax: The withholding tax varies depending on the amount withdrawn and your province of residence.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 your current income is higher than your retirement income, you’ll pay more taxes now.
- 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 to make your contribution.
Spousal RRSP Withdrawals
Withdrawals from a Spousal RRSP, can only be made by the annuitant (generally, the person for whom the plan provides a retirement income).
If you contribute to a Spousal RRSP in the year of the withdrawal, or the two preceding years - you, not the annuitant, may be required to include the withdrawal amount as income. This is known as the attribution rule.
Learn more about Spousal RRSP withdrawal rules.
You may also be interested in:
Registered Retirement Income Fund (RRIF)
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1 Subject to any restrictions on the investments held.
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