Can I Take Money Out of My RRSP? What to Know

A Registered Retirement Savings Plan (RRSP) is a foundational tool for retirement savings in Canada, allowing individuals to contribute to their future while enjoying immediate tax deductions. Funds within an RRSP grow on a tax-deferred basis, meaning investment income is not taxed until it is withdrawn. This structure encourages long-term saving, helping Canadians accumulate substantial capital for their post-employment years. The primary purpose of an RRSP is to provide financial security during retirement, making withdrawals before this period subject to specific rules and implications.

Understanding Regular RRSP Withdrawals

While a Registered Retirement Savings Plan is designed for retirement, individuals can withdraw funds from their RRSP at any time. Any amount withdrawn is fully taxable as income in the year it is received. This means the withdrawn sum is added to your total income for the tax year, which could potentially push you into a higher tax bracket.

Financial institutions apply a withholding tax at the time of a regular withdrawal. This withholding tax acts as an upfront payment towards your final tax liability and is remitted directly to the Canada Revenue Agency (CRA). For residents of Canada, federal withholding tax rates are: 10% on amounts up to $5,000, 20% on amounts over $5,000 up to $15,000, and 30% on amounts exceeding $15,000. Residents of Quebec have different rates that combine federal and provincial withholding taxes.

A consequence of making a regular RRSP withdrawal is the permanent loss of contribution room. Unlike a Tax-Free Savings Account (TFSA), the amount withdrawn from an RRSP does not reinstate your contribution room in subsequent years. This diminishes your capacity for tax-deferred growth over the long term.

Initiating an RRSP Withdrawal

The process of requesting a regular RRSP withdrawal involves contacting your financial institution. Common methods include submitting a request through their online banking portal, visiting a branch in person, or speaking with a financial advisor. Each institution may have slight variations in their specific procedures.

You will need to provide identification, your RRSP account details, and specify the exact amount you wish to withdraw. Financial institutions require you to complete a withdrawal request form, which confirms the amount and acknowledges the tax implications.

Once the request is submitted, financial institutions process withdrawals within a few business days, though the exact timeline can vary. The applicable withholding tax is deducted from the gross withdrawal amount before the net funds are disbursed. After the calendar year ends, the financial institution will issue a T4RSP slip, detailing the total amount withdrawn and the income tax withheld. This slip is essential for filing your annual income tax return, as the withdrawn amount must be reported as income.

Specific RRSP Withdrawal Programs

Beyond regular withdrawals, the Canadian government offers specific programs that allow individuals to access their RRSP funds for certain purposes without immediate taxation, provided repayment conditions are met.

The Home Buyer’s Plan (HBP)

The Home Buyer’s Plan (HBP) permits first-time homebuyers to withdraw funds from their RRSPs to purchase or build a qualifying home. To be eligible, you must be a Canadian resident and not have owned a home in the preceding four years. An individual can withdraw up to $60,000, with couples potentially withdrawing up to $120,000 collectively. The withdrawn funds must have been in the RRSP for at least 90 days prior to withdrawal.

Repayment of the HBP withdrawal is required over a 15-year period, starting in the second calendar year following the withdrawal. If the minimum annual repayment is not made, the shortfall is added to your taxable income for that year.

To apply, complete Canada Revenue Agency (CRA) Form T1036, “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.”

The Lifelong Learning Plan (LLP)

The Lifelong Learning Plan (LLP) enables individuals to withdraw from their RRSPs to finance full-time post-secondary education or training for themselves or their spouse or common-law partner. You can withdraw up to $10,000 in a calendar year, with a maximum total withdrawal of $20,000. The program requires the student to be enrolled on a full-time basis at a designated educational institution.

Repayment of LLP withdrawals is over a 10-year period, with the first repayment due in the second year after the last withdrawal or the fifth year following the initial withdrawal, whichever comes first, or the first year after the student is no longer full-time. Non-repayment results in the outstanding amount being added to your taxable income.

To participate, complete CRA Form RC96, “Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP.”

Accessing RRSP Funds in Retirement

Upon reaching retirement, individuals transition their Registered Retirement Savings Plans into an income stream. Canadian tax law mandates that an RRSP must be converted into a different type of registered plan or fully cashed out by the end of the calendar year in which the account holder turns 71. Two primary options exist for converting an RRSP into retirement income.

The most common option is to convert the RRSP into a Registered Retirement Income Fund (RRIF). A RRIF functions as an extension of the RRSP, allowing investments to continue growing on a tax-deferred basis. You cannot make new contributions to a RRIF, and you are required to withdraw a minimum amount each year, starting the year after the RRIF is opened. These minimum withdrawals are calculated based on your age or your spouse’s age and the market value of the RRIF. All withdrawals from a RRIF are considered taxable income in the year they are received.

Another option is to use the RRSP funds to purchase an annuity. An annuity is a contract with a life insurance company that provides guaranteed regular payments for a specified period or for the rest of your life. This option offers predictability in income, as the payment amounts are fixed. Similar to RRIF withdrawals, annuity payments are fully taxable as income in the year they are received. The choice between a RRIF and an annuity depends on individual preferences for control over investments versus guaranteed income.