Your Registered Retirement Savings Plan (RRSP) helps you save for retirement. Once you retire, you can convert it into a Registered Retirement Savings Plan (RRIF) or annuity, to provide a regular stream of retirement income. Or you can withdraw your savings in cash. You can also withdraw money before you retire. Whenever you want to withdraw your RRSP savings, there are tax implications to be aware of.
On this page you’ll find
When can you withdraw from your RRSP?
You can withdraw from most RRSPs before or after you retire. But it’s important to understand how and when you make a withdrawal impacts your taxes.
Withdrawing from your RRSP before you retire
If you withdraw from your RRSP before you convert it in retirement, this amount will be considered taxable income. As a result, you will likely pay more in income tax that year. You will also be charged a withholding tax by your financial institution. For these reasons, withdrawing from your RRSP before you retire should ideally be done as a last resort.
If your RRSP is a locked-in plan, you won’t be able to withdraw from it before you retire, for any reason.
Withdrawing from your RRSP when you retire
There are two ways to convert your RRSP into income when you retire.
Convert your RRSP to a RRIF
A Registered Retirement Income Fund (RRIF) can be opened any time, but no later than the end of the year you turn 71. You open an RRIF by transferring money from your RRSP. Once the RRIF is set up, you can’t contribute any more to the plan.
Because RRIFs are tax-sheltered, like RRSPs, you can choose to hold investments in your RRIF such as GICs, mutual funds, ETFs, stocks and bonds. But you’ll have to take out a minimum amount every year.
Learn more about RRIFs.
Buy an annuity with your RRSP funds
You can use your RRSP savings to buy an annuity. An annuity is a contract with a life insurance company. You deposit a lump sum of money, and they agree to pay you a guaranteed income for a set period of time, or for the rest of your life.
Annuities are purchased from a licensed insurance agent or broker, or from a financial advisor who is licensed to sell insurance. Some investment firms may also have staff who can sell annuities.
Learn more about annuities.
You can also choose to put money in both a RRIF and an annuity. This can make sense if you want to keep some control over your investments and payment options, but also want the security of guaranteed income.
Your RRSP funds are likely just one part of your overall retirement picture. When it’s time to convert your RRSP into retirement income, consider speaking with a registered financial advisor.
What is the impact of dipping into your RRSP before retirement?
You can take money out of your RRSP before you retire. For example, you might tap into your RRSP to cover costs of an emergency situation. But you will pay an immediate tax on the money you take out, and possibly more at tax time. And you’ll permanently lose the contribution room you originally used to make the contribution.
Two tax consequences of withdrawing from your RRSP before retirement
1. You pay a withholding tax
Your financial institution will hold back the tax on the amount you take out and pay it directly to the government on your behalf.
The withholding tax rate is between 10% to 30% (except in Quebec), depending on how much you take out of your RRSP.
2. The amount you withdraw is taxable income
You have to report the amount you take out on your tax return as income. At that time, you may have to pay more tax on the money — on top of the withholding tax. It depends on your total income and tax situation. Learn more about the rules and consequences of taking money out of your RRSP.
There are anti-avoidance rules to prevent people from using or receiving their RRSP funds without including these amounts in income. You’ll pay tax equal to the fair market value of the “advantage” you gained – effectively a 100% tax.
Two tax-free ways to borrow from your RRSP before your retirement
There are two government programs which allow you to borrow from your RRSP before retirement without paying tax. These are for buying your first home, and to pay for education or training.
1. Home Buyers’ Plan (HBP)
You and your spouse each can borrow up to $35,000 from your RRSPs for a down payment on your first home under the federal government’s Home Buyers’ Plan (HBP). You won’t pay any tax on the money as long as you pay it back over the next 15 years.
2. Lifelong Learning Plan (LLP)
You and your spouse each can borrow up to $20,000 from your RRSPs to pay for full-time or part-time education or training expenses under the government’s Lifelong Learning Plan (LLP). The maximum you can take out in any year is $10,000. You won’t pay any tax on the money as long as you pay it back over a period of 10 years.
If you use the HBP or LLP, you should have a plan to repay the amount in the required period of time.
An alternative to the RRSP Home Buyers’ plan is the First Home Savings Account (FHSA), first available in 2023. If you’re planning to save for a home, consider if the HBP or FHSA is the right choice for you.
Saving in an RRSP can help provide you with a regular stream of retirement income. There are ways to withdraw money before you retire, but you should be aware of the tax consequences:
- If you take money out early from your RRSP, you pay a withholding tax, and you may have to pay additional tax when you declare it as income on your tax return.
- You can withdraw money — tax-free — from your RRSP if you use it to fund your education or buy your first home through a federal program.
- When it comes to getting income from your RRSP, you can convert it to a RRIF, an annuity or both.