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RRSP Withdrawals

RRSP Withdrawals are typically made when an individual retires and needs income from personal savings. When this is the case the RRSP would be converted into a RRIF (Registered Retirement Income Fund) and income would drawn from the new RRIF account. Of course you can always make RRSP Withdrawals without converting to a RRIF, but I have given some reasons not to do that below.

Why are RRSP's converted to RRIF's?

By law, a RRSP has to be converted to a RRIF by the end of the year in which the plan holder turns 71. RRIF's have set minimum withdrawal amounts that have to be taken, a percentage of plan balances, this percentage increases with age of the plan holder. A full schedule is below.

RRIF Schedule

But, you don't have to wait until your 71 to start withdrawing money. A RRIF can be set up at any age, but there will still be minimum amounts that must be withdrawn.

If you are wondering why not just make a RRSP withdrawal instead of converting to a RRIF. If you want money from a plan but are not yet 71 and do not have to convert, consider the following:

  • Withdrawals straight from a RRSP are subject to RRSP withholding tax of 10% on the first $5,000, 20% on the next $10,000, and 30% above $15,000. 

rrsp withdrawal
  • Trying to take money out in separate $5,000 blocks will not work as once a the initial $5,000 is achieved, subsequent withdrawals will be at the higher rates. With a RRIF, there is no withholding tax on the minimum requited amount, but above that the table above applies. The withholding tax is essentially a deposit on your taxes for the year as all the RRIF income is taxable. 
  • Financial institutions often charge for RRSP withdrawals and are usually only able to accommodate lump sum withdrawals, not regular income streams that many retirees would be looking for. 
Conversion of the plans is between you and your financial institution, the CRA only enforces the rules around the plan.

Tax Tip
  • If you are 71 and have to convert your RRSP to a RRIF but your spouse is not yet 71, you can continue to contribute to her spousal RRSP until he/she is required to convert to a RRIF, as long as you stay within your RRSP contribution limits. Learn more on the Spousal RRSP page.
  • You can also elect to use your spouses age for the minimum payment calculation. If you do not need the income this will result in more tax free growth as the younger age will result in a lower minimum payment, and hence more money in the RRIF

There are two plans that will allow RRSP plan holders to make withdrawals without withholding tax and without the amount being immediately in taxable income. The are the First Time Home buyers Plan (HBP) and the Lifelong Learning Plan (LLP).

The HBP allows first time home buyers to take a maximum $20,000 from their RRSP to use towards their home purchase. This money have to be re payed over 15 years. On Schedule 7, near the bottom, there is a box to designate any portion of RRSP contributions to the HBP (and/or LLP) repayment. If you have made RRSP contributions through the year that contribution will simply be reduced the the allocated payment amount.

The LLP allows full time students to withdraw up to $20,000 to use towards education costs. The student must be full time (there are special rules for disabled students)
at a qualifying educational program. Much like the LLP, this money has to be repaid over 10 years, and again schedule 1 is used to allocate repayment.

Click here to go to the Canada income tax forms page and find LLP and HBP forms and documentation

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