Submitted by nsscadmin on
As the name suggests, a Registered Retirement Saving Plan, or RRSP, is meant to be used to fund your retirement. Money contributed to an RRSP and must be converted to: a Registered Retirement Income Fund (RRIF) or annuity, or withdrawn by December 31st of the year you turn 71 years old.
If you withdraw money from your RRSP early without using one of the sanctioned government programs it will be taxed two ways.
First, it must be declared on your annual income tax return and will be taxed as income both federally and provincially using the marginal tax rate. No matter how old you are when you make a withdrawal from an RRSP, all funds must be declared as income.
Second, when you make a withdrawal, a specific amount is withheld by your financial institution and turned over the to CRA called ‘withholding tax.’. The amount withheld depends upon the size of your withdrawal. In most provinces and in all territories the rate of withholding tax is as follows:
$1-$5000 = 10%
$5001-$15,000 = 20%
$15001+ = 30%
The withholding tax rate differs in Quebec where it is…
$1-$5000 = 5%
$5001-$15,000 = 10%
$15001+ = 15%
If you are thinking about withdrawing from your RRSP early make sure you’re aware of how much withholding tax will be taken out. You should also take into account that you do not get back any contribution room when you make a withdrawal. Prior to withdrawing funds from your RRSP, you should consult with a tax professional.