Q

Can I withdraw money from my RRSP early?

A

You can, but it will likely come with a tax penalty.

In certain cases, you can withdraw money early from your RRSP without penalty. But remember, as its name clearly states, a Registered Retirement Plan is a savings plan for retirement, not to satisfy a Porsche craving, or for paying off your Christmas credit card bills.

Still, any money you ever contributed is your money, so you’re technically free to take it, but you might pay dearly. Unless you’re over 71, you’ll be assessed a withholding tax. Before you can even get your mitts on your money, your bank will take between 10% and 31% right off the top and turn it over to the government — the more you withdraw, the higher the percentage. And once that money is withdrawn, you will have permanently lost that contribution room in your account.

But there are two notable exceptions that will allow you to make penalty-free early withdrawals. The RRSP’s Home Buyer’s Plan allows you to borrow up to $25,000 penalty-free towards the purchase of a house, provided you haven’t owned one in the last five years. You’ll be allowed to repay the loan within 15 years, but should you fail to do so, you’ll permanently lose that contribution room. Similarly, the Lifelong Learning Plan allows you to borrow up to $20,000 (again, penalty-free) to fund your education. The small print: you’re allowed a maximum withdrawal of $10,000 per year, and you have a grace period of five years after your first withdrawal to begin repaying the loan. After you make your first payment, you’re allowed a full ten years to repay the withdrawn amount. If you fail to pay the full amount back by then, you’ll permanently lose the opportunity to replace it.

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