Taking money out of your RRSP before retirement

A Registered Retirement Savings Plan can be a powerful investment tool for your money. Canadians contributed over $36.8 billion to their RRSPs in 2014, according to Statistics Canada.

​​You can take money out of your RRSP before you retire. However, you will pay an immediate tax on the money you take out, and possibly more at tax time. Also, you’ll permanently lose the contribution room you originally used to make the contribution.

Your financial institution will hold back the tax on the amount you take out and pay it directly to the government on your behalf.

The withholding tax rate is between 10% and 30%, depending on how much you take out of your RRSP. In Quebec, the rate is between 5% and 15% and there will also be provincial tax withheld.

If you withdraw: Withholding tax rate (except Quebec) Withholding tax rate in Quebec
​Up to $5,000 ​10% ​5%
​Between $5,000 and $15,000 ​20% ​10%
More than $15,000 ​30% ​15%

Example – You want to take out $10,000 from your RRSP this year. After the 30% withholding tax ($3,000) is applied, you only end up with $6,000.

For funds held in the province of Quebec there will also be provincial tax withheld. For more information on Quebec withholding, contact your financial institution or Revenu Québec.

You have to report the amount you take out on your tax return as income. At that time, you may have to pay more tax on the money — on top of the withholding tax. It depends on your total income and tax situation. Learn more about the rules and consequences of taking money out of your RRSP.

As of July 2011, there are new anti-avoidance rules to prevent people from using or receiving their RRSP funds without including these amounts in income. You’ll pay tax equal to the fair market value of the “advantage” you gained – effectively a 100% tax.