Making RRSP withdrawals before and after you retire (2024)

FAQs

Making RRSP withdrawals before and after you retire? ›

You can make a withdrawal from your RRSP any time¹ as long as your funds are not in a locked-in plan. The withdrawal, however, is subject to withholding tax and the amount also needs to be included as income when filing your taxes. There are situations in which tax-deferred withdrawals can be made from your RRSP.

If you take money from your RRSP, the government will charge a RRSP withholding tax. The amount you pay depends on the amount you withdraw and where you live. Taking $5,000, means the withholding tax rate is 10%. Withdrawing between $5,001 and $15,000 means the withholding tax rate is 20%.

Once you retire, you have three options: Cash out all your savings as a lump sum (income taxes will apply) Convert your RRSP to a Registered Retirement Income Fund (RRIF) Purchase a Life Income Fund (LIF)

Spousal RRSPs come with a three-year attribution rule, which only permits withdrawals three years after the deposit date. So, for example, if you deposit funds into a spousal RRSP on January 1, 2024, your spouse or common-law partner won't be able to withdraw the funds until January 1, 2027.

Note: Any portion transferred to an RRSP, a RRIF, or to purchase an annuity does not qualify for the pension income amount.

You are permitted to make multiple withdrawals from your RRSPs under the HBP; however, you are only permitted to make those withdrawals in the same calendar year as your first withdrawal, and in January of the following calendar year.

That could save a significant amount of tax, because the amount you pay if your income is stable over a number of years is lower than it would be if your income was volatile.” In some cases, too, you might want to withdraw most or all of your RRSP funds before you even start collecting OAS and CPP.

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

Canadian citizens that have become non-residents can continue to hold RRSPs after leaving Canada.

At what age should you withdraw from RRSP? ›

By the end of the year you turn age 71, you must convert your RRSP to income options or withdraw all your RRSP funds.

Mandatory RRSP Withdrawals at Maturity

Your RRSP reaches maturity on the last day of the calendar year you turn 71. At this point, you can access your RRSP assets through 3 maturity options. The tax implications of your decision depend on the option that you choose.

You may withdraw $10,000 per year tax-free from their RRSPs under the LLP for a total lifetime amount of $20,000. Withdrawals can happen over a maximum of four years. At least 10% of the amount borrowed from the RRSP must be repaid every year. Therefore, you have 10 years to repay the entire amount that was withdrawn.

Making early, strategic withdrawals from your RRSP makes sense in this situation because it can: Lower taxes that you pay in the long term. Spread out your RRSP/RRIF withdrawals over more years. It can provide a source of cash flow before you start collecting other forms of income like pension income or CPP and OAS.

If you are receiving eligible pension income, you may be entitled to claim both a federal and a provincial/territorial tax credit. The federal non- refundable pension income tax credit is on the first $2,000 of eligible pension income, which translates into maximum federal annual tax savings of $300.

If you're 65 years or older at the end of the tax year, you can claim a non-refundable tax credit towards your federal taxes. To qualify, your net income must be less than $39,826, and the amount you may claim varies depending on your income. For your 2022 tax return, the age amount is $7,898.

Withdrawing from RRSPs early sometimes makes sense.

In that scenario, the RRSP gets transferred to you tax-free. This is great, but when you reach 71 and forced to convert the RRSP to an RRIF, you'll be required to withdraw 5.4% of the account balance in the first year and increasing after that.

If you don't make the maximum allowable RRSP contribution in any given year, Canada Revenue Agency (CRA) lets you carry forward the unused contribution room indefinitely and add this to the amount you can contribute for future years.

You can withdraw money from your IRA at any time. However, a 10% additional tax generally applies if you withdraw IRA or retirement plan assets before you reach age 59½, unless you qualify for another exception to the tax.

Where do you deduct your contributions. Deduct your contributions on line 20800 – RRSP deduction of your income tax and benefit return. For information on deducting your pooled registered pension plan (PRPP) contributions, go to contributions to a PRPP.