Canadians can Withdrawal Money from their RRSP at any Time

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Any employment income earned and contributed into an RRSP is exempt from tax for the duration that the money is in the RRSP.  You have to pay tax at source whenever you make a withdrawal from the plan. You can withdrawal money from your RRSP at any time prior to your retirement as long as the money is not locked into an RRSP.  This money must be claimed as income on your tax return the next year. If the funds in an RRSP are “locked in” then you typically cannot make withdrawals from the locked amount.

When you withdraw money from your RRSP, the financial institution will withhold tax on the money. The amounts are:

  • 10% on money up to $5000
  • 20% on money $5001-$15,000
  • 30% on any money over $15,000

The tax rates differ in the province of Quebec.

The tax being withheld by the financial institution may not be enough, depending on your tax bracket. There may be additional tax required when filing your income tax return for the following year.

There are specific circumstances where a withdrawal is allowed without the financial institution withholding tax.  When withdrawing money to be used for the Homebuyers Plan or Lifetime Learning Plan the money is not included in the income on the following tax return.

When using these plans there are certain restrictions on deducting the contributions during the 89-day period before the withdrawal from the fund.  The biggest advantage of the plan comes if the money has been in the RRSP for more than 90 days.  The same rules apply when contributing to a spousal RRSP within 89 days of a withdrawal.  For the contributions to be fully deductible , the amount left in the RRSP after the withdrawal must be equal or greater than the amount of the withdrawal.

Home Buyers’ Plan

The home buyers plan is for those in the process of buying or building a house who require funds. The plan allows an you to withdraw up to $25,000 from your RRSP in a calendar year. The funds can also be withdrawn to help a family member who is disabled to buy or build a home. The total amount withdrawn must be paid back to the RRSP plan. A tax payer has a grace period of one year in which no payments are required. After that period ends, repayment is required. Tax payers generally have up to 15 years to repay the amount withdrawn. In order to participate in this withdrawal plan, the tax payer must be approved by the CRA after submitting a T1036 form.

RRSP plans for Continued Education

Another method of withdrawing money from an RRSP tax-free is through the Lifetime Learning Plan. 

Individuals who are seeking funds for further education may be approved for an RRSP withdrawal under the lifelong learning plan. The lifelong learning plan allows an individual to withdraw amounts from their RRSP to finance full time training or education for either themselves or their spouses or common-law partner. However, the funds cannot be used to finance the education of their children or their spouse or common law partner’s children.

The amount withdrawn under this program must be repaid within 10 years. Each year the CRA require 1/10 of the withdrawn amount to be repaid, till the balance equals zero. Interest is not applied to the amount withdrawn. In order to take advantage of this program, the tax payer must submit a RC96 and have approval from the CRA.

To be eligible for this plan, a tax payer must own an RRSP, be enrolled or have received an offer to enrol before March of the following year for the education program in consideration, be a Canadian resident and have repaid any lifelong learning plan funds withdrawn in previous years.

There are a number of requirements that must be met in relation to the educational for the penalty free withdrawal.

The requirements include the following:

The program must be full time and full time status is defined by the educational institution that provides the program. The program must be approved as a qualifying program by the CRA and must be offered at a designated educational institution (college, university or other educational institution that qualifies under the CRA regulation.) The program must also be at a post-secondary school level. The program must last 3 consecutive months or longer and require student to spend 10 hours or more per week for course work (not including study time).

Canadian tax payers have unlimited access to the use of the lifelong learning plan, as long as the withdrawal balance is repaid to zero after each withdrawal. Additionally, the withdrawn funds can be used for both the plan owner and spouse at the same time, assuming both are approved under the school requirements. The plan has an age limit of 71; once an individual has reached 71 they are no longer able to take advantage of the lifelong learning plan.

The tax payer must apply for the lifelong learning plan prior to commencing a program. It may not be used for programs completed.

If any of the required conditions are not met while the individual is participating in the plan, the RRSP withdrawal will not be considered eligible. This will result in the individual having to include the RRSP withdrawal as income on their income tax for the year in which funds were received.

Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.