What are the conditions for withdrawing from an RRSP?

Gena Katz, a chartered accountant and principal with Ernst and Young, has the answer.

Gena Katz 6 December, 2002 | 2:00PM
Dear Expert:

If I need some money from my RRSP, what is the process for withdrawing from it without purchasing an annuity or RRIF? Is there a limit, and does the amount withdrawn have to be repaid?

Expert Opinion:

There is no formal process for withdrawing funds from an RRSP before maturity - unless the withdrawal is made under the Home Buyers' Plan, the Lifelong Learning Plan or represents the withdrawal of excess contributions. You simply ask the financial institution to arrange a withdrawal.

However, there are a number of things you should know before doing this. First, the gross amount withdrawn is considered taxable income, and will have to be included in your income tax return for the year of withdrawal. It will be reported to you on a T4RSP slip. Also note that tax will be withheld by the financial institution and that you will receive only a net amount. The amount of tax payable will depend on the amount of money being withdrawn and your province of residence.

 All provinces (except Quebec)
 Withdrawal amount Tax rate
 $0 to $5,000 10%
 $5,001 to $15,000 20%
 $15,001 and over 30%
 Province of Quebec
 $0 to $5,000 21%
 $5,001 to $15,000 30%
 $15,001 and over 35%

The tax withheld will be credited on your tax return for the year of withdrawal to ensure that you aren't double-taxed.

Other than Home Buyers' Plan or Lifelong Learning Plan withdrawals, there is no requirement to repay RRSP withdrawals. In fact, unless you have excess unused contribution room, you won't be able to repay the amounts to the plan. That's because the contribution room that was used when making the original RRSP contributions is not resurrected; when a withdrawal is made, that RRSP room is lost forever.

Bear in mind that you may be required to liquidate investments within your plan to raise cash for a withdrawal. In the case of certain long-term fixed-income investments, there may be penalties associated with early redemption, and some mutual funds charge redemption fees if they are held for less than a minimum period.

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Gena Katz

Gena Katz