Making RRSP withdrawals before you retire

A quick look at the impact of dipping into your RRSP before retirement.

You can take money out of your RRSPRRSP See Registered Retirement Savings Plan.+ read full definition before you retire — for example, to cover an emergency situation. But you will pay an immediate taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition 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.

2 tax consequences

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% and 30%, depending on how much you take out of your RRSP. In Quebec, the rate is between 5% and 15% and there will also be provincial tax withheld.

If you withdraw: Withholding tax rate (except Quebec) Withholding tax rate in Quebec
Up to $5,000 10% 5%
Between $5,000 and $15,000 20% 10%
More than $15,000 30% 15%

Example – You want to take out $20,000 from your RRSP this year. After the 30% withholding tax ($6,000) is applied, you only end up with $14,000.

2. The amount you take out 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.

Anti-avoidance rules

As of July 2011, there are new 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.

2 ways to borrow money from your RRSP tax free

1. Buy your first home

You and your spouse each can borrow up to $35,000 from your RRSPs for a down payment on your first home under the 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. Pay for education or training

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.

You can’t borrow money from your RRSP to pay for your child’s education. But you can save tax free for your child’s post-secondary education in an RESP.


If you take money out early from your RRSP:

  • you pay a withholding taxWithholding tax Tax that comes off your pay or other income and goes to the government before you get any money.+ read full definition, and
  • you may have to pay additional tax when you declare it as income on your tax return.

Key point

You can borrow from your RRSP tax free to buy your first home or pay for your education.

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