Can I Withdraw From My RRSP Before Retirement?

A Registered Retirement Savings Plan (RRSP) is an account designed to help you save for retirement with tax-deferred growth. If your plan is not a “locked-in” account, which often holds pension funds, you can withdraw money from it at any time. Taking funds out early has significant financial consequences.

A standard withdrawal triggers immediate taxes and can impact your long-term savings. The government also offers specific programs that allow for tax-free withdrawals for major life events, like buying a home or funding education, provided you follow strict rules.

Consequences of a Standard RRSP Withdrawal

The most direct impact of a standard withdrawal is the withholding tax applied by your financial institution. This tax is sent directly to the government, and the rate depends on the amount withdrawn. For all provinces except Quebec, the rates are 10% on withdrawals up to $5,000, 20% on amounts between $5,001 and $15,000, and 30% on amounts over $15,000. In Quebec, the federal rates are lower, but a separate provincial tax is also applied.

This withholding tax is only an initial deduction. The total amount you withdraw is considered taxable income and must be reported on your annual tax return. This added income can push you into a higher marginal tax bracket, leading to a larger tax liability than the amount initially withheld.

For example, if your annual income is $64,000 and you withdraw $10,000 from your RRSP, your reported income becomes $74,000. The financial institution would have withheld $2,000 (20%). However, the additional $10,000 in income could be taxed at a higher rate when you file your return, potentially resulting in you owing more tax than the $2,000 already paid.

Another consequence of an early RRSP withdrawal is the permanent loss of contribution room. When you withdraw funds outside of the designated government programs, that contribution room is not restored. You cannot re-contribute the amount you withdrew, which permanently reduces the total you can save in your RRSP.

Tax-Deferred Withdrawal Programs

The government offers specific programs that allow you to borrow from your RRSP without immediate tax consequences, provided you follow strict repayment rules. These programs are designed to help with significant life events.

The Home Buyers’ Plan

The Home Buyers’ Plan (HBP) allows you to withdraw funds from your RRSP to buy or build a qualifying home for yourself or a related person with a disability. To be eligible, you must be a first-time home buyer, meaning you have not owned a home in the four years before the withdrawal. The maximum amount you can withdraw under the HBP is $60,000. Both you and your spouse or common-law partner can withdraw up to the maximum from your respective RRSPs for the same home purchase.

You have up to 15 years to repay the full amount to your RRSP. For HBP withdrawals made between January 1, 2022, and December 31, 2025, the repayment period begins in the fifth year after the first withdrawal. The Canada Revenue Agency (CRA) will send you an annual statement detailing your outstanding balance and the minimum required repayment. If you fail to make the minimum repayment in any year, that amount will be added to your taxable income.

The Lifelong Learning Plan

The Lifelong Learning Plan (LLP) enables you to withdraw from your RRSP to finance full-time training or education for yourself or your spouse or common-law partner; you cannot use it for your children’s education. The student must be enrolled in a qualifying program at a designated educational institution. The program must be technical or vocational, or last at least three consecutive weeks with ten hours of work per week.

Under the LLP, you can withdraw up to $10,000 in a calendar year, with a total maximum of $20,000. You have a 10-year period to repay the funds. While repayments must begin no later than the fifth year after the first withdrawal, the exact start date is set by the CRA. Similar to the HBP, if you do not make the required annual repayment, the shortfall is included in your income for that year. The CRA will also provide an annual statement for the LLP outlining your balance and minimum payments.

The Withdrawal Process

The withdrawal process differs depending on whether you are making a standard withdrawal or using a government program.

Required Information and Forms

For a standard, taxable withdrawal, you will complete an internal request form provided by your financial institution. You will need to provide your Social Insurance Number (SIN) and RRSP account details.

For a withdrawal under the Home Buyers’ Plan, you must complete Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. This form requires your personal information, RRSP account number, and certification that you meet all HBP eligibility conditions.

If withdrawing funds through the Lifelong Learning Plan, the required document is Form RC96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP. This form asks for your personal details, SIN, RRSP account number, the withdrawal amount, and information about the student’s enrollment.

Executing the Withdrawal

Submit the completed forms to the financial institution that holds your RRSP. After processing your request, which may take several business days, the institution will release the funds. For a standard withdrawal, the institution will automatically deduct the applicable withholding tax. For HBP and LLP withdrawals, no tax is withheld if the forms are completed correctly.

Following the withdrawal, your financial institution will issue a T4RSP, Statement of RRSP Income slip, to both you and the CRA. For a standard withdrawal, this slip shows the gross withdrawal amount and the income tax deducted. You must use this slip to report the income and claim the tax paid on your income tax return. For HBP or LLP withdrawals, the slip will indicate the amount withdrawn for the specific program, which is not reported as income.