Withdraw from an RRSP

James Rodriguez James Rodriguez updated on 2022-05-10

RRSP accounts are one of the most popular ways for Canadians to prepare for their retirement. But what happens when you want to withdraw from your account? When can you withdraw from your RRSP? How do you withdraw from your RRSP?

In this guide, find out everything you need to know about withdrawing from your RRSP: tax rates for withdrawals, the best times to do so and all our top RRSP tips.

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What is an RRSP?

RRSP stands for Registered Retirement Savings Plan. It is a savings account registered with the Canadian government that gives you different savings benefits than a standard savings account. It allows you to save in two ways:

  • by deducting the amount from your taxable income 
  • by making your money grow tax-free

There are different types of investments for an RRSP savings account, but here are 3 main categories: 

  • Savings accounts: low-interest rate, but a good option for the short-term saving
  • Guaranteed Investment Certificates (GIC): more restricted with 1 to 5 years of locked-in money, interest up to 2.5%
  • Money market funds: non-guaranteed investments, money invested in stocks, bonds or securities.

Opening an RRSP account gives you a significant tax advantage. In effect, an RRSP account, being tax-deductible, allows you to prepare for your retirement by letting your money grow sheltered from government taxation. 

In addition, the money you put into the account is deducted from your income when calculating your taxable income. 

In other words, if you have a salary of $55,000 for the year and you invest $7,000 in your RRSP account, the taxable amount of your annual income will be $48,000, not $55,000. This means that the amount of tax you pay annually will be lower and your money gets to grow tax-free: you win on both counts.

How do I contribute to an RRSP account?

Each year, if you wish to contribute to your RRSP, you must make the payment before March 1. Note that there is a maximum contribution threshold for your RRSP account: it is the lesser of either 18% of your income as reported in the previous year's tax return, or the limit imposed by the Canada Revenue Agency, which changes every year, plus any contribution room carried over from the previous year. For 2021 the contribution limit was $27,830.

It is recommended that you speak with an advisor to establish a contribution strategy for your RRSP account. Each individual has different needs and savings capacities and therefore requires personalized guidance. Prepare for your retirement now by opening an RRSP with the help of our experts.

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For many individuals it is preferableto make periodic contributions of smaller amounts over the course of the year, rather than a single large payment at the end of the year.

This way, you accumulate periodically, it doesn't affect your daily cash flow as much, and the total will still be significant at the end of the year. Perhaps even more than with a single contribution.

What is the mandatory RRSP withdrawal age?

You can only have an RRSP account until you turn 71. Therefore, the year you turn 71 you are required to either cashout your RRSP or convert your RRSP account to an RRIF, which is often considered an extension of the RRSP account.

Before 71, there is no obligation to cash in your RRSP account. It is possible to do so, but most advisors advise against it because of the high withdrawal fees involved.

When can I withdraw from my RRSP? 

Though mostly used to prepare for retirement, Canadians can use their RRSP account and withdraw money from it at any time. 

It is possible to withdraw funds from your RRSP a for some major life events. For example, if you are going back to school or buying a property. 

There are very few RRSP withdrawal rules, however, beware of taxes on RRSP withdrawals. If you decide to withdraw money from your RRSP account, the amount as well as its interest will be taxed in the year of the withdrawal. Your bank will deduct a percentage directly from the amount you withdraw. Additionally, the amount you withdraw will have to be declared as income. 

Withdrawals from an RRSP to take advantage of the Home Buyers' Plan (HBP) or the Lifelong Learning Plan (LLP) may be tax-exempt, provided they are repaid to an RRSP in equal annual installments over a specified period of time.

Here is an example of the RRSP withdrawal rates based on the amount withdrawn from your RRSP account:

Amount RRSP Withdrawal Tax Rate
Up to $5,000 10%
(5% in Quebec)
Between $5,000 and $15,00020%
(0 - 10% in Quebec)
More than $15,000 30%
(15% in Quebec)
RRSP Withdrawal Tax Rate Percentage Chart - RRSP Withdrawal Tax

The tax on an RRSP withdrawal is proportional to the amount withdrawn.

This is why experts advise against withdrawing money from your RRSP before you retire. Though there is no withdrawal penalty, in addition to exposing you to high tax rates, it prevents you from accumulating capital without any tax constraints.

How do I make a withdrawal from an RRSP account? 

If you decide to withdraw money from your RRSP, how do you proceed? Your banking institution will take care of withdrawing money from your RRSP, but before doing so, you must prepare yourself and ask the right questions. Such as, for example, what will your life cost once you retire? 

The more information you provide about your plans and goals once your RRSP account is disbursed, the easier it will be to adopt a precise plan that will allow you to enjoy your retirement.

Finally, remember to bring the important papers that your advisor will ask you for: 

  • income tax return
  • notice of assessment
  • pension funds
  • statements on your investments.

How to withdraw your RRSP without paying tax?

Although not at all recommended by experts and advisors, it is possible for any RRSP account holder to withdraw funds from his or her account before retirement.

There are several circumstances where disbursement of the RRSP is encouraged even if it is premature in relation to your retirement:

Home Buyers’ Plan (HBP)

If you wish to acquire a property, have not become a homeowner in the last five years, and will repay the amount within 15 years of the withdrawal, you can withdraw up to $25,000 from your RRSP. This amount will not be taxable and will allow you to have a larger down payment on a property. 

Lifelong Learning Plan

If you or your spouse plans to go back to school, you can withdraw up to $10,000 per year from your RRSP for four years to help pay for the cost of schooling. 

Other reasons to consider withdrawing from your RRSP

To have a better record when applying for a mortgage refinancing

If you have a high level of debt and no source of funds to draw from, it is recommended that you use your RRSP to get rid of your debts and improve your credit rating, which will allow you to obtain a mortgage refinancing.

Getting out of a vicious circle of endless debt

Although it is a last resort, you should not underestimate the possibility of using part of your RRSP to get out of a debt circle. 

To have an alternative to debt for a year with no or low income

If you experience a job loss or are taking a sabbatical year it might be recommended to dip into money in your RRSP to make up for the income loss rather than going into debt. Since your tax rate will be low, the tax impact of the withdrawal will be less. 

Tips for withdrawing from your RRSP

There are many different strategies for making a withdrawal, but most agree on certain points. Here are some strategic tips to consider if you are thinking of withdrawing from your RRSP: 

Disburse your RRSP last

First, dip into your bonds, savings account, and preferred shares, in short, all the income on which you were taxed each year. You can then access your TFSA account, tax-free. At the end, when the time is right or as a last resort, touch your RRSP account.

Don't withdraw from your RRSP until you're older 

Or at least do it very slowly since withdrawing your RRSP before age 71 will cause you to lose tax-sheltered capital growth. So if this happens to you, take the time to do it over a period of time, as long as possible and preferably when all your other sources of income have diminished. 

Switch from RRSP to RRIF account

Once you turn 71, convert your RRSP account to an RRIF: Registered Retirement Income Fund. 

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How do I convert my RRSP to an RRIF?

The RRIF, or Registered Retirement Income Fund, gives you tool for withdrawing funds from your RRSP and funding your retirement. You can roll your RRSP into an RIFF tax-free.

Each year after opening your RRIF you must withdraw a minimum amount from the the fund. This amount will be taxable. In addition, once the RRIF account is established, you cannot add funds to it (unlike an RRSP). 

The advantage of an RRIF is that once you retire, you can continue to have tax-sheltered funds and choose each year how much you want to withdraw. 

Please note that although we often talk about the conversion between an RRSP and an RRIF, it is possible to open an RRIF account at any age.

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