By June 15, 2017 Read More →

Cost of Making an Early RRSP Withdrawal

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Use this calculator to see the impact of a one-time withdrawal on the value of your RRSP.

An early withdrawal from your RRSP can have several costs with a long-term impact on your retirement savings.

One of the main costs is the loss tax-sheltered growth over time. For example, if you withdraw $5,000 now from an RRSP that grows at 6% per year, you will have $21,460 less in RRSP in 25 years.

See Also: Tale of Two RRSPs

Any withdrawals from your RRSP are subject to withholding tax and the amount of the withdrawal is included in your taxable income for the year. If your marginal tax rate is higher than the withholding tax rate, you’ll have to pay additional tax on the money you’ve withdrawn.

Another cost when you withdraw funds from an RRSP is the loss of the contribution room that you originally used to make your contribution. You can’t re-contribute the amount you withdrew which further reduces the potential value of your RRSP.

There are three situations where it might be a good idea to take money out of an RRSP before retirement:

  1. Home Buyers Plan withdrawal.
  2. Life Long Learning Plan withdrawal.
  3. Withdrawals when you are in a lower tax bracket.

Use this calculator to see the impact of a one-time withdrawal on the value of your RRSP.


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