Minimizing the RRSP Withholding Tax on Withdrawals

You’ll recall that withdrawals from your RRSP are normally included as income in the year that you make the withdrawals (save for a few exceptions). If you happen to be in a low income year and have the need to make a withdrawal from your RRSP, then it might make sense to space out your withdrawals such that you minimize the withholding tax that your RRSP issuer will remit to the Government on your behalf…

For example we know that your RRSP issuer will withhold the following percentages if you ask to make a withdrawal from your RRSP:

Withdrawal of up to $5,000          =    10% Withheld

Withdrawal of $5,001 – $15,000    =    20% Withheld

Withdrawal of $15,001 and above =    30% Withheld

So let’s say you are in a year where you have NO income from work and you decide that in order to pay your bills you will have to withdraw approximately $17,500 from your RRSP. In Ontario, someone with a taxable income of $17,500 would pay about $1,869 in income tax for the year (according to the trusty online 2007 tax calculators at Ernst & Young’s website).

Well, according to the chart  up above, if you made a withdrawal of $17,500 from an RRSP account in one transaction – your RRSP issuer is obligated to withhold 30% of that $17,500 – or in other words: $5,250. Therefore, you would have to wait until you filed your taxes for 2007 before you would receive a tax refund of $3,381 (which is equal to $5,250 taxes paid minus $1,869 taxes owing). Would you loan any money to the government interest-free if you could avoid it? Well, most people wouldn’t – and here is one way to go about it:

You could space out your withdrawals so that instead of having one lump sum withdrawal of $17,500, you could structure it as four separate withdrawals of $4,375. In this case, each withdrawal would only be subject to a withholding amount of 10%, or $437.50 per withdrawal. $437.50 multiplied by four withdrawals equals $1,750. So in this case, you would actually be borrowing $119 from the Government interest-free until you filed your taxes ($1,869 taxes owing for the year minus $1,750 paid in the form of withholding tax).

One thing to note is that if you ask your RRSP issuer for $5,000 NET (meaning that is how much money will be transferred to your bank account AFTER deducting withholding taxes) then that puts you in the $5,001 – $15,000 withdrawal range, since in order to provide you with $5,000 net, they will need to de-register $6,200 GROSS (20% of $6,250 = $1,250 withheld).

Additionally, if you make a withdrawal from your RRSP in a higher income year, and the withdrawal is for under $5,000 – your RRSP issuer may not withhold ENOUGH tax and you will have a higher tax bill come tax time than you might have otherwise thought.

For example, let us say you are in the top tax bracket in Ontario (46.41%) and for whatever reason, you decide to make a withdrawal of $5,000 GROSS from your RRSP account. Your RRSP issuer will withhold 10%, or $500, from the gross amount to leave you with $4,500. Therefore you have paid $500 in income tax in advance for this withdrawal. HOWEVER, as a top-tax bracket investor, you will actually owe a total of $2,320.50 in income tax on this withdrawal. Since you have only paid $500 “in advance”, you will be on the hook for an additional $1,820.50 come tax time.

And finally, I know that some RRSP issuers will not allow you to take advantage of this loophole of making separate withdrawal requests if they are too close together. Well actually, they will let you make the requests and they will process them, but they will add up the total amount of the separate requests and have a balloon withholding tax amount on the last withdrawal. One way to avoid this would be to make withdrawal requests from separate RRSP accounts or RRSP issuers if you have more than one.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
Related Posts
Showing 100 comments
  • Carole

    My current situation is such that I need to withdraw $10,000 from my RRSP rather urgently. I’ve contacted the firm which handles my small retirement portfolio and asked them to arrange two withdrawals of $5,000 each at one week’s interval, in order to keep the withholding tax at 10%. This is something they’ve arranged for me in the past without any problem.

    The client service representative with whom I spoke today, however, informed me that the Canada Revenue Agency has changed the rules regarding the withholding tax and that I now have to wait 30 days after the first withdrawal before making the second one; otherwise, I’ll have to pay 20% withholding tax on a cumulative withdrawal of $10,000.

    As this mirrors exactly what you describe in your last paragraph, the “new rule” could be something the issuer of my RRSP has implemented since I last had to withdraw more than $5,000. If that is the case, I have no choice but to accept their way of doing things. What puzzles me is that the service rep made it a point to tell me this was NOT the issuer’s policy, but a new government regulation.

    I’ve been searching the Web for hours and cannot find confirmation of this rule change anywhere (least of all on the CRA’s meagre website). As far as I can tell, what was true in 2007 still holds true: as long as the withdrawal requests are made on different days, each withdrawal is subject to the 10% rate of withholding tax.

    Did the government really change the regulations this year? Or was my service rep misinformed by the RRSP issuer? I would like to know what’s what when I get back to her on this matter. If this is the issuer’s policy, then they should own up to it instead of shifting responsibility to the government, don’t you agree?

    Thank you SO MUCH for your most informative blog. I’ve bookmarked the site and will be returning often.

  • Preet

    Hi Carole, while the rules have not changed as far as I can see, I too have heard from some people in the office that a firm’s RRSP administration department are including balloon withholding on subsequent withdrawals within certain time periods.

    Assuming we are talking about separate firms, it may very well have been a request from CRA. While it may not help much now, the actual tax owing will be settled come tax time and any overpayment will be refunded when you file your next return. The firm would have no incentive to hold back the higher amount of tax so it sounds like it could have been a request by CRA. Sorry I don’t have a definitive answer for you…

    I’m glad you find the blog useful, and thanks for asking your question – they are always welcomed.

  • RRSP Newbie

    I love how simple you have made it, works for regular folk like me!

    I am curious about this hypothetical scenario however:

    2008 Income = $50,000
    2008 RRSP Contribution = $5,000

    2009 Income = $50,000
    2009 Contribution = $0
    2009 RRSP Withdrawal = $5,000

    When I file my 2009 taxes in 2010, I know my income would be $50,000 + $5,000 = $55,000 for 2009 because I made a withdrawal.

    My question is, will the refund I get in 2009 because of my contribution in 2008 be equal to the extra tax I pay in 2010 for my total 2009 earnings? Would I break even, come ahead or be a little behind?

  • Preet

    @ RRSP Newbie – in theory you would break even. This is because the 31.15% tax bracket (in Ontario) ranges from well below $45,000 to well above $55,000 (which is what your example’s annual incomes would be for those two years). In reality, there might be a few dollars of wiggle room as tax credits and the basic personal exemption, etc change a bit from year to year. But we’re talking literally a few bucks in this case.

    You can look up your province’s tax brackets by searching on this page.

  • RRSP Newbie

    Thanks for the quick response Preet, it’s good information!

    I have continued my reading on RRSPs on the CRA website and have another scenario which I could not find an answer to. I would appreciate your opinion/thoughts on this:

    2008 Income = $50,000
    2008 RRSP Contribution = $5,000

    2009 Income = $50,000
    2009 Contribution = $0
    2009 RRSP Withdrawal for education = $5,000

    The withdrawal for education is made using the the life long learning plan (assuming I meet all the criteria) so I don’t get any withholding tax. The CRA website talks about some sort repayment to back to the RRSP. Are you essentially taking a loan from your RRSP at 0% interest?

    If I were to make a $5,000 contribution to my RRSP in 2010, would that $5,000 be first used to clear my “loan” balance for the withdrawal in 2009? As in I would not be able to deduct it from my income in 2010 to get a tax break?

  • Preet

    @ RRSP Newbie: Yes, it is a 0% loan from your RRSP so long as you make the minimum repayments. If you don’t, then the minimum repayment amount is added to your income and you would owe tax on that amount (at your marginal rate). The $5,000 contribution (in your example), would first go to paying your minimum amount owing for HBP repayment, and then you could decide whether you wanted to apply it against the HBP repayment beyond that (and not get a deduction, but reduce your future annual repayment amounts) or use it to generate a deduction now.

  • x

    Check YOUR MATH!!!!
    One thing to note is that if you ask your RRSP issuer for $5,000 NET (meaning that is how much money will be transferred to your bank account AFTER deducting withholding taxes) then that puts you in the $5,001 – $15,000 withdrawal range, since in order to provide you with $5,000 net, they will need to de-register $6,000 GROSS (20% of $6,000 = $1,000 withheld).

    20% of $6000 is $1200

  • Preet

    @ x – thanks for pointing that out. Post has been amended.

  • Shelley

    If my contribution limit for 2008 is $20943.00 and I contribute $19459.00 plus 6333.33(the 6333.33 I withdrew earlier in the year)am I overdrawn on my limit? I borrowed to mae up for what I withdrew but now I am hearing I cannot do that. True or false??

  • Luigi

    Preet, quick question:
    Does a RRSP withdrawal in January/February 2010 counts as income for 2009, in the same way a contribution on the same period would count as 2009?
    In short, is the “first 60 days rule” also valid for withdrawals?

  • Preet

    @Luigi – as far as I know, withdrawals count for the actual tax year in which they are made. Jan/Feb 2010 withdrawals will count as deregistrations for the 2010 tax year. Cheers

  • Derek

    Withholding tax regulations suck. You should be allowed to deal with the taxes at tax time.

    There should also be a provision whereby if you can make a withdrawal and pay it back within the same tax year to avoid any penalties.

  • Adam

    My wife and I are newly married and plan to start a family in the next couple of years. Ideally she will be a stay at home mom, and I will bring in all of the income for the family.

    Three questions;

    Would it be a wise strategy to contribute heavily to her RRSP with the intention of making withdrawls when she is at home with no income?

    I have substantial contribution room in my own RRSP. Can I use some of this to contribute to her RRSP account

    What do you think of this strategy

  • Nav

    When i intitially got RRSP it was $5000 but now since my advisor invested it in a good place it is $7000 (just got the statement). Does that mean that $7000 is mine and i can withdraw $7000 now if i want??
    Also i m buying a second house so i need the money. Is there any loophole to go around first time buyer plan.
    Just to mention the house i m buying now after selling my first one is with my dad and brother (who have never owned a house). Can we work something on that.?? please help

  • Shannon

    Love your site…frequent it regularly!

    My Question – to protect yourself at tax time, can you request that more than 30% be withheld at the time of withdrawl? I am considering taking out funds from my RRSP (requiring approx 15K net) and I am worried that the 30% will not cover my total taxes at the end of the year on top of my regular salary of 35-40K.

  • Vishal

    Hi Preet,

    Kudos for explaining it in such a simple way.

    I’d appreciate if you could answer my question.

    2009 – gross salary, 70000 – no contribution to RRSP
    2010 – gross salary, 80000 – no contribution to RRSP yet

    I plan on buying a house (first house) in 2011. So can I invest 25000 in my RRSP for 2010 and get a tax rebate in 2010 and then withdraw it in 2011 in Home buyers plan. I understand that I’ll be required to repay this 25000 in a period of 15 years. Correct?

    Moreover, if some year I cannot repay then I can simple put the 1/15th of 25K as additional income that year and pay taxes on it. Without doing any extensive math, I see some great tax savings for me at the cost of committing 25K for my own good at retirement over next 15 years.

    Is it as good as it sounds? Or do you see any catch?


    • Preet

      Hi Vishal, you are correct as long as you have $25,000 of contribution room available. Your refund (assuming your payroll taxes are correct) will be for the 2010 tax year, which is filed in 2011. Make sure the contributions are in long enough that you can claim them as deductions.

      The HBP program requires that you repay your RRSP over 15 years, starting in the second year after the year of withdrawal. So basically that means you won’t have to make any repayments in the year you make the withdrawal OR the following year either. In addition, since the repayment is technically due at the time you file your taxes – it can be around 3 years before you actually have to start making payments back to your RRSP.

      See this post for more details:

  • Vishal

    In addendum to my previous post..

    I figure out that if my annual income is going to go up few times in next 15 years; then the re-payment amount (1/15th of 25K) could potentially generate more tax-rebate if I claim it like like regular RRSP contribution over next 15 years since I’ll potentially be in higher tax brackets. On the other hand, it protects me during those years of lower income where I simply do not pay that year’s 1/15th part and rather include it as income and pay lower taxes instead. I assume that amount would be reduced from my balanced repayment amount as it has become an income for that year.

    I think the comparison should be between the value of saving extra 7000 odd dollars this year (as it lets me put down payment on a house in 2011, may be save CMHC fee, and appreciate higher than RRSP savings) versus the extra tax (in ideal scenario) that i fail to save because of my income falling in higher tax brackets in next 15 years and I not being able to use 1/15th of 25K in those years.

    I see value as it lets me act quicker on house purchase front.

    Comments anybody?

  • curious.

    Hi Preet

    Having a discussion and need a professional opinion. Hoping you can help. If RRSP contributions are not claimed as a deduction, in the future if you withdrawl can you use the deduction to offset the taxes on the income?

    Thank you.

  • Young

    Hi Preet,

    If I become non-resident, how can I withdraw from RRSP? Is that mandatory that I should be resident to withdraw RRSP? any change in with holding tax for non-residents? Thanks in advance

  • Tim

    Hi Preet, I am a resident of Ontario and was laid off January 26 2011, I am currently collecting unemployment. I Have a small RRSP of approx $7000 dollars that I could really use to pay down some debt. How will i be penalized if I withdrawl these funds? What is the best way for me to withdrawl the funds IE: under 5 to avoid the 20% auto withholding or should i tske it all out at the same time? Thanks for any help

    • Preet

      Wow, it’s only taken me three weeks to get back to you – My apologies!

      First – check to see if the investments themselves have any penalty for redeeming/selling them to cash.

      Second – the post explains the ramifications of withholding tax fairly clearly, but let me know if you have any other questions…

  • Joy

    Hi Preet,

    I have a friend who wants to settle in India after retirement. Suppose he has 100,000 in RRSP. What is the best way to save tax on RRSP withdrawals when he has no income. How much he can withdraw every year without tax assuming that his wife is not working. Canada has tax treaty with India.

    • Reva

      Hi Preet, I have a quick question.Can I withdraw from my RRSP to pay for my son’s college education?What will be the impact on my taxes? What is the percentage of withdrawal to be paid back and what is the time period to be paid back?

  • Arta

    Hi, when my husbund retires at 60 year old can he use my RRSP?

    • Preet

      He can’t technically “use” your RRSP, but you can make withdrawals and spend the money as you see fit, which would include giving the money to him. You may want to speak to a financial planner about income splitting options.

  • JimmyG

    I lost my job a while ago and am struggling to find a decent paying job. I have 40K left on my mortgage and am thinking I would like to pay it off. To do this I would have to withdraw from my rrsp – is it worth it? My income for this year will be low (20K). Other scenario would be to reamortize mortgage but I really want it paid off. Advice please.

    • Preet

      Hi JimmyG, if you are unemployed then one thing to consider is that by paying off the mortgage you lose the ability to use the RRSP funds for an emergency should one arise. With the house paid off, but no job, it may be harder to obtain equity out of the house. So from a flexibility point of view, this is something to consider.

  • Bella

    I have requested at the bank to withdraw around $35,000. However, they withdraw almost double amount. I was paying only 10% taxes. I have no income for this year. Will I pay 15% taxes on $41, 544 and then 22% on the rest?

    • Preet

      Hi Bella, every dollar of withdrawal will be treated as regular, salaried income. The withholding tax they take at time of withdrawal is only a downpayment on the taxes owing once you file.

      But of more concern is that they took out the wrong amount. Call your bank, and complain like heck until they correct their error.

  • Al

    I have read your information on keeping the withdrawal amount under $5000 so that tax withheld is only 10%, however, banks love to charge an additional amount for all withdrawals in the year.(in my case $25 per withdrawal) I was thinking that if I withdrew 5000 it would give me 4500 after withholding tax and was thinking it might be best to have them take the $25 from the 4500 resulting in 4475 to me. Is that the best way to handle those those charges which add up over a few withdrawals or would there be better or any other ways to handle the charges?

    • Preet

      Sounds about right Al. If they took it from the gross amount, you would be at $5025 and in the next withholding tax bracket. I suppose to be cautious, you could make your withdrawal for $4974.99 although there might be GST/HST on the withdrawal fee?

    • maximax

      Hi Al,
      I was curious to know which bank charges $25 per withdrawal because my bank charges $56. It would be good to know for future investment purposes.



  • Subramanyam gopalan

    My wife’s income this year is(year 2011)is C.$ 90000 including severance pay. She has only $8000 room in RRSP for 2011.

    I am retired and have pension income. I have room in RRSP for $ 9000 accumulated.

    Can she Make a RRSP contribution for her RRSP $ 8000 and Spousal RRSP for me $ 9000 and take the total deduction of $ 17000 from her annual income for 2011.

    Please confirm


  • Maureen

    My husband’s registered pension is $66,000. As well as splitting income, how much rrsp should we withdraw each to maximize taxes? Should we try and keep each of our incomes in the $40,000 dollar range to pay the least amount of tax?

    • Preet

      Hi Maureen – unfortunately you won’t be able to get the answer you seek without an in depth analysis. That would include looking at what your spending requirements are, as well as long term projections. If you do not already have an advisor, you could look at hiring a fee-only advisor who charges by the hour for a one off analysis.

      Tax minimization is usually a secondary goal, but a goal nonetheless.

      Sorry I couldn’t give you the answer you are looking for, but I wouldn’t be able to based on this information.


      • Maureen

        We have other money in savings etc. It is not an issue of spending requirements or long term projection. I won’t be receiving an income until I turn 55, at that point I will be withdrawing from my RRIF. I thought that since I have 3 yrs of no income we could benefit from withdrawing rrsp money to save from paying more taxes at a later time when our income will be higher.

      • Brian Poncelet,CFP


        I have to agree with Preet. You need to get some answers regarding your RRSPs, if you have other savings can they go down in value?. If you are not yet 55 does the money have to last 25-30 years?

        Get some independent advice. Pay for someone to run some numbers for you. Other factors to consider is health insurance, taxes, inflation, rates of return, what if the returns are low for the next 10 years, do you have to replace cars, travel, help kids,…will you run out of money?

  • Mike Brennan

    Preet, I have approx $370000 in 4 RRSPS ,I have a $350000 house with a $169000 2.5% variable mort fixed for another two years,I recently cashed in $30000 of rrsps and paid $7400 in withholding taxes to realize the approx 20k I needed to replace my roof and some windows in the house.I have,after being laid off little income except about $200 weekly in EI and about $1800 monthly in other income.I have been semi retired for 4 years working part time.I of course want to avoid using my rrsps for normal living costs and it has been suggested to me that I could hold the house mortgage within my rrsps and save some money in that way ,is this feasible. The mortgage presently is held by the same company that has my rrsps and because of this no mortagage insurance is required by this company.We have no other debt.

  • Brian Poncelet, CFP


    My concern here is what happens when your RRSPs are gone? Assuming you may be under 65 your RRSPS may have to last another 20 years.

    My suggestion is to consider selling the house before you take out another major lump sum unless you are getting at least 10%…which is not possible in this market without being conservative.

    • Mike Brennan

      Preet ,at this stage ,no need or intention to touch any more of the rrsp monies.Main question in there was the feasibility of holding our mortgage within the rrsps. With the mortgage where it is at $860 per month and our need for at least a two bedroom apt, our costs inclusive of utilities is about what a two bed apt would cost us,so really no advantage to sell,at this moment.

      • Preet

        Hi Mike, please note the first answer to your question was answered by someone else. I’ll type out my response shortly…

  • Michelle

    Hello Preet.

    I have a question that I have not yet been able to get a clear answer to. With my current income, I’m in the 35% marginal tax bracket, so I know that if I make an RRSP contribution this year, I’d get about a 35% refund. What I am wondering is, my husband and I are planning to start a family very soon, and once the kids arrive, I won’t go back to work until they are in school. So, if I contribute to an RRSP this year and next year, and get 35% back, and then about a year after the fist baby is born, I want to withdraw under $5000 from my RRSP, I understand that I’d pay the 10% withholding tax. Being that I would have NO income other than this withdrawal, come tax time, is it correct that I would get that 10% withholding tax back? (Or is it like a penalty that the government keeps?). I assume I’d get it back, but no one I’ve talked to has been able to confirm this. Therefore, is using RRSP’s a good way to boost our savings for those slim “baby years” and not pay tax?

    Thanks in advance for your help.

    • Preet

      Hi Michelle. You are correct in that the withholding tax is simply a prepayment of any taxes owing once you file your return. Once the return is filed, it is possible that the withheld amount was not originally necessary as you may not have any taxes owing for that year, and hence you would get it back in the form of a refund.

      Standard disclaimer: I’m not an accountant, and it’s always best to check with a professional one for tax related matters.

      Hope that helped!

  • Andy

    Hi Preet
    I am an expat on a work permit and will most likely leave Canada(Alberta) to go back to Europe by the end of 2011. My employment in Canada ends on December 31, 2011. No further income in Canada afterwards.

    I have approx. 30k in RRSP’s. What is the best strategy to cash my RRSP’s?
    –> Are 6 or 7 withdrawls under 5k in 2012 over a period of maybe 7 months my best option?
    Do you have any other/better recommendation to lower the withholding tax amount?

    Thank you for your help,

    • Preet

      Hi Andy, depending on your financial institution they may kick up the withholding rate to 30% after a few withdrawals even though each individual one may be under the 10% bracket.

      Further, it won’t make a difference once you file your Canadian return as withholding tax on RRSP deregistrations are just prepayments on taxes until the final amount is calculated when you file. Any difference is adjusted by a refund or taxes owing later on.

      I would definitely seek the advice of an accountant who is familiar with departures from Canada as this can be tricky. A professional will undoubtedly be able to show you some ways to save taxes on more than just your RRSP deregistration strategy.

  • Jeff

    Hello Preet,

    My question is about withdrawals from my wife’s RSP, she has no income other than CPP, and we have been taking $15k out each year and reinvesting the money in TFSP’s. My question is should we be taking more that that amount out of her RSP? When she reaches 71 and has to take out the mandatory amounts she will be receiving CPP and Old age pension and her income will be higher. She dosen’t receive any pensions from employment. I receive two pensions plus CPP, and will also be receiving Old age pension at 71, we are presently 63 and 62. I think we should have been taking more out of her RSP, that is where we put most of our RSP money because she didn’t have a pension.

    Thanks, Jeff

    • Preet

      Hi Jeff, by TFSP do you mean TFSA? And if so, putting in $15K is going to put you in a penalty situation by overcontributing.

      There are so many moving parts at retirement that I really think it is worthwhile to pay a few hundred bucks and get a proper projection done (either by an accountant or financial planner). It could save you thousands in tax.

      What you are looking at is a type of RRSP meltdown (there are various degrees of meltdown). An advisor will need to know how much you spend now and later, how much is in your RRSP, and so on in order to figure out how to minimize your taxes over a long period of time.

      Sorry I couldn’t provide a definitive answer, but there is just too little information to go on here.

      But do check into that TFSA contribution. Make sure you are not going over the limits…

      • Lui


        I’m contemplating doing something similar as Jeff except moving out the RRSP funds into an RDSP. Are there any penalties with that approach?

        Looking at my wife’s RRSP, if she is going to be taxed when she takes the money out at retirement, she will be taxed even further as she will also have a teacher’s pension.
        Therefore, thinking by moving part of her RRSP funds into an RDSP now (while she is not earning an income), we shouldn’t be taxed now and we will avoid that future taxation.

        Understanding you may not have all the facts, so what would make this a reasonable or unreasonable approach?

  • Rebecca

    Hi Preet. quick question.

    I am currently having my wages garnished by RevCan. If I redeem any of my RRSP dollars will RevCan take 1/3 of that as well? I

  • Michelle

    my yearly income is $51500.00. I took the $5000.00 from my rrsp to assist with my move. After the tax I received the $4500.00.
    I get $207 per month in baby bonus from the REV Canada for my kids.
    I normally put $4000 per year in my RRSP.

    What happens now when I file my taxes for 2011, as I pay less tax due to the kids and my normal return is in the area of $600 due to 1 child fitness credit.
    I will only have rental receipts for 2 months. Will I owe the REV Canada the $4500 that I took from my RRSP as it is/was income?

    Thank you

    • Preet

      Hi Michelle, the $5,000 is considered regular income. The $500 withheld is a downpayment on any tax owing, but the final accounting of what you owe is calculated when you file your taxes. Your marginal tax bracket rate is applied to the $5,000 you took out to determine what the tax is owing on the amount. Other deductions may offset that, but again you won’t know until you calculate everything. Best advice is to get an accountant to provide guidance specific to your situation.

  • john tedesco

    if i borrow 200000.00 to buy commercial property and pay 8000.oo interest can i with withdraw 8000.00 from rrsp tax free

    • Preet

      Well, you can write off the interest of $8,000 and you will be taxed at your marginal rate for the deregistration of $8,000 from your RRSP. Assuming no other tax transactions, they would cancel each other out.

  • H

    Hi Preet,

    Given your last example it states that if I am in the top tax bracket in Ontario(46.41%) and I withdraw $5,000 that principle will be reduced by $500 by the RRSP issuer and $1,820.50 for tax.

    However what if I decide to wait the next year in which I will have either no income or low income will this circumvent the large tax? I am not trying to completely deter tax payments, but in which ways can I ameliorate deductions from taxes having collected RRSP shares during low bracket then withdrawing it on a higher bracket?

    Thank you for your time.

    • Preet

      Yep – what Ross said. :)

      At the time of withdrawal, only the $500 would be withheld. Once you file your taxes for the year, only then will you see if you owe or are owed.

  • RossTaylorMoney

    The $500 held back at the time of withdrawal is for sure. The additional taxes depends on your income in the year of withdrawal. So if you have no income in the year of withdrawal, not only will you not be hit later with the 46% tax bite, but you rate to get most, if not all of your $500 back as a tax refund.

  • Andrew

    I’ve just been fired and have received a payout that will put me into the highest tax bracket. I am starting a new business in 2012 so will probably have a low income. I have lots of RRSP contribution room.

    Can I make a large RRSP contribution for 2011 to get the tax break, then turn around and withdraw it in 2012 at a much lower tax rate?

    • Preet

      You’ll have to double check with your own professional, but so long as you wait long enough between contribution and withdrawal, yes this strategy will lower your tax burden. You have up until the first 60 days of 2012 to make contributions for the 2011 tax year. Look into the 89 day deductibility rule first.

  • Mark T

    Hi Preet-

    I am confident that I know the answer to this questions, but I wanted to double check..

    If I withdraw from my RRSP in the first 60 days of 2012, will it be added to my 2011 income ?



    • Preet

      Hi Mark – a withdrawal of funds from an RRSP (a deregistration) can only be claimed on the date of the deregistration. The 60 days of the next year rule only applies for contributions.

  • kassie wright

    Hi Preet,

    Thanx for all the helpful info. much appreciated.
    Hope you are enjoying the holidays.

    Last year on 2010 federal tax summary my husband made $79,172 , and I am on CPP disability so I made $6,034. This year should be the same. But we want to take out $15,000 to pay down debt.

    If we take $4376. out next week, jan 04, and then another 4376. the following week and 4376 the next week, 12,000 will be given to us right? and 12,000 will be added to our income next income tax yr (apr 2013).

    We get a disability tax credit of approx 4-6700$ back each year. On income tax in 2010 we got a refund for disability tax credit of 6765. So we will still get a refund of about the same this tax time in april 2012. But in april 2013 we will be taxes on the three withdrawals for 12,000. If we make the same amount on income, but have these withdrawals, how much will we be required to pay? And assuming we get back about 6000$ this will be taken off of that right?

    I’m confused, please help.
    Thanx so much,

    • Preet

      Hi Kassie, 3 x $4,376 is $13,128 and that is the amount that will be included as taxable income if you ask for 3 x $4,376 GROSS. If you ask for it NET, they will process a higher amount and leave you with 3 x $4,376 after withholding tax, but that would then get reconciled when you file your return for the year.

      The withholding at the time of each withdrawal is kind of like a downpayment on the tax that will be calculated and owing when you file your return the following year.

      I would check with an accountant for your exact situation for advice – he/she may be able to take advantage of some other credits/programs applicable for those who qualify for disability benefits.

  • dale h

    Hi Preet:

    You make reference to the 89 day rule. I was trying to explain this catch to my wife because she wanted to make a 2011 rrsp contribution asap and then shortly withdraw funds from her rrsp to pay down personal debt. My understanding is that her 2011 contrib may be disallowed if she does not allow the required time between the two transactions. Any comments would be appreciated. Dale

    • Preet

      You are bang on. The 89 day rule can span multiple calendar years and it doesn’t matter if you make a contribution in the first 60 days to qualify for last year, if you do not wait until 90 days after the last contribution, that last contribution (up to the amount withdrawn) won’t get you a deduction. AND you’ll still get dinged on taxes for withdrawing so you might have double taxation with no recourse. (You ended up putting after tax dollars in, didn’t get a deduction, and then it got treated as income on the way out and subject to tax again.)

      As always, check with a tax professional first, but I would say avoid this like the plague. Or save some time and just write a cheque for a donation to the CRA because it’s wasted money.

  • Preet

    Assuming that this is the best strategy (I always recommend getting a plan, you can consider a fee-only (hourly, flat rate) consultation), there is no way I am aware of to avoid the withholding in this scenario.

    Even if you space out the withdrawals, the financial institution may elect to use a higher withholding rate on subsequent withdrawals in the same year.

    Withdrawals are taken in the calendar year, and you have until Feb 29th of 2012 to make a contribution to count for 2011, correct.

    Hope that helps.

  • Chen

    Hi Preet,

    In February 2010 my husband and I were new immigrants to Ontario and my husband started work three months after we arrived. By mid of the year, we approached our bank for advise on RRSP’s for him and was told that we could invest up to 18% of his annual income, etc. which we went ahead and started doing. We set up an investment plan where a set amount would go into the RRSP account per pay check until it reached a level we wanted. When we had to do taxes for the year, the tax accountant informed us that by husband was not supposed to contribute to a RRSP as he did not have any contribution room as he only just started working that year (and you needed to file taxes for the year to get the NOA which would say if a room existed and how much). We were told that we would be liable to penalties by the government for over-contributing (which happened for a few months and the bank paid this to us). We were further advised by various people to withdraw the funds. Finally with all the pressure, we withdrew the entire RRSP amount. We were told that there would be withholding tax however we could claim that back when we did taxes (??). Now when researching more on this, I understand that this withdrawal is considered an income for the year we took it out and that it would be taxed as such, which is disappointing as he is in a high income tax bracket. We have since received my husband’s 2010 NOA and it now shows for 2011 he has a contribution room which we can use. We are planning on maximizing the contribution room for 2011, the same year we withdrew the funds from, due to the error of the bank.

    My question is, how can we get back the entire amount which was withheld in tax as the real reason for this withdrawal was so that we don’t accrue penalties from the over contribution? Any information you could provide would be appreciated as we are very new in this game.

    Thank you.

    • Preet

      @Chen I would contact the branch manager and ask them to correct the situation since it sounds like you received bad advice which put you into this situation in the first place. If the branch manager doesn’t provide help, ask him/her for the Bank’s Ombudsman contact information. Send a detailed letter to the Ombudsman by registered mail, and keep written notes of all further interactions with your bank about this (or any other) matter. If the bank’s ombudsman does not provide a satisfactory solution, let me know.

      If what you say is true, the advice given was incompetent and your bank should reimburse you for any fees or penalties incurred because of their incorrect advice.

      • chen

        @Preet @Chen

        Hi Preet,

        Thanks for your reply. The bank did acknowledge that this was their error and they were very apologetic about it and have paid us the 1% penalty fees for the months where the ‘over-contribution’ occured. However, my latest concern as I recently found this out, is that the withdrawal now shows up as income in this tax year and will be taxed again by the government, right? Ideally then, should the bank be paying me this too?

        We are planning to re-contribute into the RRSP before the Feb deadline; are we going to make a mess of this situation if we do that? Will we still owe tax on that withdrawal we we contribute to an RRSP in the same tax year?

        Thanks again.

        P.S. We are meeting with our bank manager in two days to hopefully sort this out, but prior to that would really appreciate your thoughts as well.

      • Preet

        @Chen Yes, you could try to argue that the bank should be paying this as well since you were trying to correct an error they made.

        If you make a contribution, now that you have room to do so, think of it as a separate transaction. It will reduce your tax owing which may offset the tax incurred by the withdrawal.

  • Teej

    Hi Preet,

    I’m currently advising a friend of mine about making RRSP contributions to be used toward the Home Buyer’s Plan (HBP) down the road. He works freelance, and is concerned that he’ll be heavily taxed if he needs to withdraw his RRSP contributions in case of emergency, before he ends up using the money toward the HBP. I just want to make sure I understand the Withholding Tax correctly to give him the proper advice.

    Let’s say I put $10000 into my RRSP’s, and given my tax situation this ends up reducing my taxes paid and leads to a $3100 tax refund for me that year (which works out to 31% of my contribution money back at tax time). Then 8 months later (well past the 89-day marker) I choose to withdraw $10000 from my RRSPs due to an emergency, and I would therefore be forced to pay the 20% withholding tax (in Ontario), which would be $2000. Am I not still benefiting — I reduced my taxes by $3100 upon making the contribution, and then got dinged for $2000 by withdrawing early — as I seem to still be $1100 ahead? Is there anything I’m missing here?

    Thanks in advance for your advice.

    • Preet

      Yes – you are missing the final reconciliation of the tax owing when you file your taxes for that calendar year. The withholding tax is only a “down payment”. For example, if your friend is in the 31% tax bracket and deregisters $10,000 the tax owing will be $3,100. If $2,000 is withheld at time of deregistration, then $1,100 would be owing when he filed his taxes. Does this make it more clear?

      Also, a word of caution when providing friends with financial advice: you can give him food for thought but you should really encourage him to speak with a professional. Sometimes it can come back to bite you, especially if they misinterpret your advice, or if you provide inaccurate advice.

      Thanks for your question

  • krit

    Hi Preet,

    Have watched you on TV, and just read the ‘About Preet’ page. WOW! :)

    I have a spousal RRSP for my wife in which I last deposited 10K in 2006. Therefore if I withdraw money now, it will be taxed to her. She had 6K income last year and this year she’s taking maternity with very little benefit expected.

    While tinkering with the numbers I’m finding that if she takes out the money this year, where she will have no income, I will lose the spousal amount. That in itself will be more than if she paid taxes on the withdrawal at the minimum tax rate. So I’m finding out that it is more expensive to withdraw when she has no income, than when she has some income and the spousal amount is exhausted.

    Quite a few of my friends cant believe this either but we cannot find any info on this. Can you please help answer this? Also is there a way to withdraw now (in February 2012) and still add it to my wife’s 2011 tax return?

    Thanks in advance!

    • Preet

      Hi Krit – thanks for watching!
      Yes, the spousal credit is reduced dollar for dollar with income until eliminated at $10,xxx.
      The credit is then multiplied by the lowest tax bracket. I suggest speaking with an accountant for verification of course.
      RRSP withdrawals can only be claimed in the calendar year of withdrawal unfortunately.

  • Burt

    One question as I could not get the answer anywhere on the net. I know if I withdraw any money from RRSP it will become an additional income to the one I have, I also know that usually the deadline for contribution to the RRSP is end of February for previous year and after that if contribute any money it will go to the current year. But what about withdrawal if you withdraw money from RRSP, say on 15 of January 2012 and again on 15 March 2012 and each time $5000.00 is income of 10,000.00 for the year 2012 or is it 5000.00 for the year 2011 and 5000.00 for year 2012?

    • Preet

       @Burt It would be $10,000 for 2012. Withdrawals are counted only in the calendar year of withdrawal. Contributions in the first 60 days of the year can be used for the current year or prior year, but withdrawals are only in the current year. Hope that helps.

      • Burt

         @Preet Thank you for answering so quickly.

  • tlcelerian

    I have a question that I really need help with. My mother currently has about $140,000 in RRSP. She is go years of age and only has an annual income of around 20,000. We are starting to think about her moving in with us, but she would like to give us a lump sum of money for her living expenses, instead of a monthly payment. If she were to withdrawal 40,000 of that money in her RRSP, what kind of tax should she expect to pay.

    • Preet

       @tlcelerian It might be more advantageous to space out the withdrawals and depending on her age and other factors there are other tax credits and such that need to be factored in. I would strongly suggest getting an accountant to provide the best option for you. I would bet the few hundred bucks in fees would save you more than that.

  • Beneric

    Hello there.
    I currently am looking into ways to withdraw my rrsps for a home renovation that has gone over budget. Obviously not the ideal situation, but what are my best options? Withdraw and bite the withholding tax? My wife is the official home owner (and also a first time home buyer) Can these rrsps (solely in my name) be used by her?

    • Preet

      Once you withdraw the money you can spend it as you see fit. (Sorry for the delayed response!)
      Your financial institution will withhold a certain percentage, but then keep in mind you may owe further taxes when reconciling (by filing your return for that calendar year). 

  • newfie74

    I have about 17000 in credit card debt and my husband is a seasonal worker. We are able to make the minimun payments monthly but the intereste we are paying is high. I’m looking to withdraw about $13000 from my RRSPs to help get the debt load down, so we can may more but the monthly load isn’t as tight when he is not working. I’m trying to understand how this will work if I withdraw my RRSP’s – the bank will take 20% and withhold. The RRSPs we contribute are in both our names – can we have the RRSPs in his name when we withdrawl. He is the lower income of the 2 of us.

    • Preet

       @newfie74 RRSPs are not joint-accounts, so only one person can be the RRSP owner (spousal RRSPs allow for the other spouse to contribute, but there is only one owner). To have the tax applied to your husband, you just have to ensure that he is the named owner of the account (and IF this was a spousal RRSP, then you have to double check to ensure you don’t violate the “three year rule”: )
      Hope that helps! 

  • Garry D

    I am 64–have no income to declare for this year but will have considerable income after 65.  I wish to cash in 25,000 in rrsp—tax paid on this will be how much in AB, Can.

    • ThyFish

      Please refer to the link below, you would pay 15% federal and 10% provincial income tax.  So you would pay $6250, but if you withdrew it in one lump sum, your bank would with hold 30% for the gov’t and you would get the 5% back come tax time.  That’s why it is better to withdraw in  smaller amounts.

  • Claude Poulet

    Hi Preet,
    Here’s my situation. I am a Quebec resident. I have been on LTD for the entire year 2012. My income for 2012 is approx. $16200. My employer deducted taxes on my short term disability at a rate of my usual salary $100,000. So basically $9200 was deducted in fdederal and provincial tax on the revenue of $16,200 for 2012. I have $80,000 in RRSPs. I am withdrawing amounts of $5000 on which I am charged withholding tax of $1050/per withdrawal. I have withdrawn $10,000 and have $7,900 in my chequing account. What I would like to know is whether I can deduct this withholding tax on my income tax return and at which line.
    I^plan to reinvest the entire $7900 in 2013, when my salary will be back up to $100,000. Let me know if this is a good strategy. Thank and cheers!
    I want to withdr

  • Richard S

    When I withraw money form my RRSP the discount broker charges me $100.00. Can I claim this as an expense on my income tax?

  • Peter

    If I made an RRSP contribution on Dec 26, 2012 and have since decided to withdraw the same amount how long does the money need to be in my RRSP cash account before I can withdraw the same amount to be taxed as 2013 income? I was told RRSP contributions need to be registered for at least 30 days otherwise the 2012 deduction is no longer available. Thanks

    • Preet

      90 days. It will be taxed as income in the year it is deregistered, but for the deduction to count you need to wait 90 days to avoid getting caught by the 89 day deductibility rule.

      • Peter

        Thanks Preet! That was most helpful. Keep up the good work on CBC :)

  • Alan S.

    Dear Preet,

    Lets say I have 60K in RRSP’s and tactically withdraw 15K and then down the road have extra funds will I be able to re-contribute the 15K back in or will I loose that ability? If my contribution limit is approx. 20K per year would I be able to increase it to 35K once because of the 15K I took out? Or is that 15K history? Thanks.

    • Preet

      The only number you need to look at is the RRSP contribution room as stated on your Notice of Assessment. Withdrawals (technically “de-registrations”) have no impact on your contribution room. You don’t get back used contribution room. So, yes, that $15k room is history. But you can continue to generate room based on 18% of your previous year’s income (to certain limits). Hope that helps! :)

  • Susan

    I have no income as I’ve decided to stay home with my children. I do, however, have funds in my Rsp account that I would like to withdraw for another investment. I’m thinking $4700.00 over 3 quarters to avoid the 20%. Since I have no income except for many meager child tax benefit, would I get the withholding tax back? Or would it depend on my hubby’s income? Thanks.. Love the blog.

    • Preet

      It is not dependent on your spouse’s income so it sounds like you would get the majority of the withholding tax back after filing your taxes for the year.

  • Jason Broderick

    Why was my post removed?????????

    • Preet

      Hi Jason, I may have accidentally deleted it. The number of spam comments keeps growing, and the time it takes to manage them also increases, which increases the number of false positives. Could you post your comment again?

  • Alan S.

    Dear Preet,

    If I drop in $60K into an RRSP will I actually get back a substantial refund cheque in hand? or just a credit on my taxes to use over the years? Thanks.