Withdrawing from RRSP? Consider following issues

Withdrawal from RRSP

In times of crisis, you bank upon your investments no matter wherever you invest. Registered Retirement savings Plan is one such investment wherein a portion of your income is saved every month and returned back to you when you retire.

However, there is an option of withdrawing money partially as and when you need it. If you have met an exigency which is not so large in nature, yet you need to take out money from RRSP then you should learn the following points before making any decision.

  • Withdrawing money from RRSP account is considered as an added income for the year you make the withdrawal. You are supposed to pay taxes according to the “marginal tax rate”.
  • The financial institution will withhold a certain amount of money for paying taxes of federal and provincial government. There could be some small amount of exit load too on the withdrawals you make.
  • Every RRSP withdrawal will have a withholding tax which is levied in every withdrawal. The tax is to be paid as
  1. 10% for the first $5,000 you withdraw.
  2. 20% for the withdrawal amount of $5,000 to $15,000.
  3. 30% for any amount beyond $15,000.
  • From the above tax rates it is quite clear that you will have to pay quite huge taxes which again will add to your burden.
  • If you are thinking of paying your credit card debt by withdrawing money from RRSP then please understand that you will have to withdraw more than your debt as the taxes also should be included within your withdrawal.
  • Also, in the long run, you will see that RRSP gives a better growth than your credit card interest but for this you will at least have to wait for 10 years or more. In the first 10 years the interest on credit card will stand taller before RRSP investment.

Hence, any savings or withdrawals need a lot of thought. A hasty decision could lead you to the path of “huge losses”. Calculate you debt, savings and then decide where to make withdrawals from. Probably investments which are quite mature would be a better idea to back upon in the time of crisis. Think and then act.


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