When can I withdraw from RRSP

[aznguy99]

Normally, registered vehicle that is meant for retirement has a minimum age as to when one can withdraw from such as LIRA and other pension arrangement....Is there such an age requirement as to when I can withdraw from RRSP??

I always thought that since RRSP is simply a deferred tax, I can withdraw at any time, except that I will just incur a RRSP incomein the year of withdrawal and will be taxed accordingly, is my assumption correct?

 

[danmand]

Normally, registered vehicle that is meant for retirement has a minimum age as to when one can withdraw from such as LIRA and other pension arrangement....Is there such an age requirement as to when I can withdraw from RRSP??

I always thought that since RRSP is simply a deferred tax, I can withdraw at any time, except that I will just incur a RRSP incomein the year of withdrawal and will be taxed accordingly, is my assumption correct?

I believe you can withdraw at any time, subject to income tax (withholding tax subtracted).

 

[FAST]

I think you have to be officially retired,...or you are going to get dinged at even a higher tax rate.

FAST

 

[sau]

Danmand is correct. You can withdraw at any time; however, any withdrawal you make will be taxed as income.

For example, if you earn $200,000 and withdraw $100,000 from your RRSP, your income will be considered to be $300,000 and you will have a large tax bill at tax time.

I don't recommend withdrawing from your RRSP unless you're using the First Time Home Buyers or Lifelong education exceptions. Withdrawal is bad because 1) you get taxed and 2) you can't put the money back in.

If you need money for a short-term, I recommend using a line of credit or home line of credit instead. Much less painful than withdrawing from your RRSP.

 

[danmand]

I think you have to be officially retired,...or you are going to get dinged at even a higher tax rate.

FAST

No, you can withdraw at any time, just pay the income tax on what you withdraw. Same as if you have retired. You will eventually withdraw from the RRSP or A RIF and have income tax liability

Accountants will generally advise you to withdraw from your RRSP, if you have a year with no income, because because you eventually will be taxed on the funds.

 

[dirkd101]

sau is correct and has very sage advice.

 

[fuji]

Danmand is correct. You can withdraw at any time; however, any withdrawal you make will be taxed as income.

For example, if you earn $200,000 and withdraw $100,000 from your RRSP, your income will be considered to be $300,000 and you will have a large tax bill at tax time.

I don't recommend withdrawing from your RRSP unless you're using the First Time Home Buyers or Lifelong education exceptions. Withdrawal is bad because 1) you get taxed and 2) you can't put the money back in.

If you need money for a short-term, I recommend using a line of credit or home line of credit instead. Much less painful than withdrawing from your RRSP.

The key is to withdraw in a low income year. The primary benefit of an RRSP is getting a big tax deduction in contribution year and then paying a smaller tax on withdrawl due to taxes in retirement being lower. However if in some other year income was low it's not bad to withdraw from a tax perspective.

There's also the tax free compounding but that can be mitigated via a buy and hold investing strategy that defers capital gains into the future.

 

[danmand]

The key is to withdraw in a low income year. The primary benefit of an RRSP is getting a big tax deduction in contribution year and then paying a smaller tax on withdrawl due to taxes in retirement being lower. However if in some other year income was low it's not bad to withdraw from a tax perspective.

Some people will find that taxes in retirement are not so low. That is why it makes sense to withdraw in a low income year.

There's also the tax free compounding but that can be mitigated via a buy and hold investing strategy that defers capital gains into the future.

TFSA's provide the tax free compounding.

 

[malata]

Danmand is correct. You can withdraw at any time; however, any withdrawal you make will be taxed as income.

For example, if you earn $200,000 and withdraw $100,000 from your RRSP, your income will be considered to be $300,000 and you will have a large tax bill at tax time.

I don't recommend withdrawing from your RRSP unless you're using the First Time Home Buyers or Lifelong education exceptions. Withdrawal is bad because 1) you get taxed and 2) you can't put the money back in.

If you need money for a short-term, I recommend using a line of credit or home line of credit instead. Much less painful than withdrawing from your RRSP.

...or if you anticipate a stock market crash, than SELL SELL SELL...unless of course you're well diversified in metals and equity funds...

 

[explorerzip]

http://business.financialpost.com/p...ow-to-know-when-to-start-drawing-on-your-rrsp

 

[oakvilleguy]

The key is to withdraw in a low income year. The primary benefit of an RRSP is getting a big tax deduction in contribution year and then paying a smaller tax on withdrawl due to taxes in retirement being lower. However if in some other year income was low it's not bad to withdraw from a tax perspective.

There's also the tax free compounding but that can be mitigated via a buy and hold investing strategy that defers capital gains into the future.

Suppose one is unemployed for a year and has no employment income. Between withdrawing from a RRSP vs a trading account, which is the recommended way to go? Say the balances in both accounts are equal and I'm earning 10% return in the form of capital gains.

 

[Insidious Von]

melata has the best op.

Since the Financial Meltdown, RRSP's have been nothing but a shit show. Of course the government and the banks won't tell you that but if you're over 40, putting your hard earned money in an RRSP is foolish. There's no replacement for homework, you have to learn how the financial system works and how much risk you're willing to take on. Since the fall of 2012 I've put $0.0 into my RRSP, the government will take a minimum of %35 once you retire - money well lost.

 

[FAST]

No, you can withdraw at any time, just pay the income tax on what you withdraw. Same as if you have retired. You will eventually withdraw from the RRSP or A RIF and have income tax liability

Accountants will generally advise you to withdraw from your RRSP, if you have a year with no income, because because you eventually will be taxed on the funds.

NO,...the tax rate is different,...higher if you withdraw before you are retired.

FAST

 

[SkyRider]

RRIF -- Does a lock-in 5 year GIC your RRSP automatically convert to an RRIF at the end of your 71st year?

 

[oldjones]

NO,...the tax rate is different,...higher if you withdraw before you are retired.

FAST

I do wish you were right, but it's not true in my experience. Perhaps you can cite the tax rules and clear this up.

In our twenties my colleagues from a Royal Commission and I used RRSPs to shelter the small short-term premium pay we received and as much of the rest of it as we could for the couple of years the job lasted. Then we lived on withdrawals until we found new gigs. No special tax rates. I did the same in my late forties, same tax deal. And again in my sixties. Still same tax rates as anyone else. By that time I was 'retired', although as a free-lancer for more than three decades how was anyone to know? Not least the government or me.

Last year the law made me convert my last RRSP into a RRIF and take regular scheduled payments. But there's still no special tax rate.

 

[fuji]

Suppose one is unemployed for a year and has no employment income. Between withdrawing from a RRSP vs a trading account, which is the recommended way to go? Say the balances in both accounts are equal and I'm earning 10% return in the form of capital gains.

It's the tax year that matters so if you were unemployed from January to December you might take advantage and withdraw in December. On the other hand in April or May you don't yet know whether you will still be unemployed at year end. It's the point where you can forecast low income that you would do it.

Even if you didn't plan to spend the money you could invest it in Canadian equities (which are taxed preferentially).

Obviously if you need the money, you need the money.

The biggest downside in withdrawing in a low income year is psychological. People see RRSP as retirement savings and therefore untouchable. Once you convert it to a taxable account you may get itchy and spend money you should have saved.

Classic example, talking yourself into buying a bigger house by dumping in your retirement savings thereby taking on a much bigger mortgage payment. It's actually spending. Subtly different than buying a home and taking no mortgage or only a small one by using your savings to pay the full price. One is converting assets from equities to real estate, the other is using your equities to lever yourself into a higher spending category.

 

[shack]

Fuji seems to have it most correct.

In any fiscal year the tax rates are the same whether you are retired or not. If your income is $100K you pay the same amount regardless of how much is RSP or other income. The whole concept is that in retirement one would assume an individual will have a lower income than when they are working. As such that individual who takes money from his RSP in retirement will most likely have a lower income than if they took the same amount while employed and as such will most likely be paying tax at a lower rate.

I'm sure there may be some anomalies, but that is the way it works in the vast majority of cases.

 

[danmand]

NO,...the tax rate is different,...higher if you withdraw before you are retired.

FAST

NO, RRSP withdrawals are always taxed as regular income. .

 

[shack]

NO, RRSP withdrawals are always taxed as regular income. .

He was asking about the rate. The rate depends on what your total taxable income is, regardless of whether you are working or not.

 

[danmand]

He was asking about the rate. The rate depends on what your total taxable income is, regardless of whether you are working or not.

I was responding to:

NO,...the tax rate is different,...higher if you withdraw before you are retired.

FAST

My answer was:: NO, RRSP withdrawals are always taxed as regular income. ".