Sometimes! And never when it involves a pony. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ From our advisors Scheherazade Hasan — Senior Advisor, Digital Advice February 21, 2025 The five times an early RRSP withdrawal can make sense Hi there, Advisors tend to focus a lot on RRSPs in the first couple months of every year. That’s because the contribution deadline for the prior year runs 60 days into the new one. This year, it’s March 3, so you still have time if you’re trying to max things out — which we recommend doing if you can. But this newsletter isn’t an attempt to pester you into contributing or even to remind you about the wisdom (and tax-saving benefits) of making RRSP contributions. Instead, I want to talk about the opposite: when it can be wise to take money out of your retirement account. With RRSPs, contributions reduce your taxable income. Those taxes are effectively deferred until you make a withdrawal, at which point you are taxed at your marginal tax rate. That can mean significant tax savings for many people. But for some clients, the relative inflexibility of the account is a problem. They worry about locking their money away for a retirement goal that is still very far away. It’s a fair concern, but in certain situations, withdrawing from your RRSP before retirement is a smart, strategic move. Here are five of the most common. 1. To fund education or training: The government-sponsored Lifelong Learning Plan (LLP) lets you withdraw up to $20,000 from your RRSP to pay for tuition or other educational expenses. And it’s not just for university students. You can use the LLP to pay for professional development courses, too, which can help you earn more money or be happier. Both can be worth it, especially since there are no tax implications as long as you pay yourself back within 10 years. 2. To buy a home: If you haven’t lived in a home you owned in at least the last four calendar years, you can withdraw up to $60,000 to use on a down payment through the Home Buyers’ Plan (HBP). Again, there are no tax implications as long as you pay yourself back by the deadline, which, in this case, is 15 years. There is one caveat, however: for most people, I would recommend using the HBP only after taking full advantage of your First Home Savings Account (FHSA) and any funds available to you in non-registered accounts. If you decide to tap a tax-advantaged registered account, it's often a good idea to withdraw from the RRSP next before tapping into the TFSA. A dollar left behind in the TFSA is more valuable to you than a dollar left behind in the RRSP because it compounds tax-free and eventually be withdrawn tax-free as well. Using the HBP can be smart, especially when it can help you avoid mortgage insurance, which is required when you borrow more than 80% of your home’s value, especially in high-interest-rate environments since a larger down payment lowers the interest paid over the life of your mortgage. Reducing monthly housing costs, which are paid in after-tax dollars, is a form of tax savings. 3. To support yourself in leaner years: There’s a common misconception that early RRSP withdrawals are penalized, but they’re actually just taxed at your current marginal rate. And if your marginal tax rate drops substantially due to a layoff, a career break, or parental leave, you might be better off withdrawing from an RRSP rather than using a loan. You can take out as much as you want, but remember, the more you take out, the more you are taxed — and the less money you have invested for retirement. That said, if you withdraw funds and don’t need them after all, consider reinvesting them in a TFSA if you have contribution room left instead of leaving them in a slush fund. 4. To smooth out your retirement income: Some people ease into retirement by working part-time or taking on more fulfilling roles that may not pay as much as their previous careers. As a result, your employment income is reduced. And since you may be too young to receive your pensions (or you don’t want to start receiving them yet to boost your eventual payout), RRSP withdrawals, which are entirely at your discretion, can be a good source of supplemental income. Also, at age 71, you’re required to convert your RRSP to a Registered Retirement Income Fund (RRIF), which comes with mandatory annual withdrawals. If you have a large RRSP balance, those forced withdrawals may put you in an income bracket that is high enough to trigger clawbacks of government benefits such as Old Age Security. Withdrawing strategically from your RRSP before retirement — if you have the contribution room, you could even withdraw from your RRSP and put the money in your TFSA, where it will not count as income — can help smooth out your tax rate over time and avoid those clawbacks. 5. To reduce taxes on your estate: If you don’t designate a tax-deferred account to your surviving spouse or common-law partner, the CRA will tax all your remaining RRSP or RRIF in the year you die. In many cases, there is enough money in your account that the top marginal income tax rate would apply. Pulling from your RRSP earlier could be an effective way to lower your estate's taxes. One important thing to remember when considering early RRSP withdrawals: unless it’s for the HBP or LLP, any withdrawals decrease your contribution room, and you won’t get it back. That means you have less opportunity for tax-sheltered compounding of your investments, which can affect your retirement outcomes. So be sure to consider the trade-offs before making a big move. If you’d like to talk through the decision, we’d be happy to help you out. And maybe consult with an advisor before making any early withdrawals. All the best, Scheherazade Hasan (shuh-HERR-uh-zahd) Senior Advisor, Digital Advice Get a 2% bonus when you transfer your RRSP Register and transfer an RRSP of at least $15,000 and we’ll give you a 2% match, pay your transfer fees, and even send you skiing. T&Cs apply. Learn more Need a will? There’s a simpler way. Learn more about estate planning with Nolan Gery, Lead Advisor, and Willful’s CEO and co-founder Erin Bury on March 11 at 12pm ET. 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