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When you withdraw funds from your RRSP, you will pay an immediate tax on the money you take out (called a withholding tax—generally, between 10% – 30%), and possibly more at tax time. 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 tax withheld may not always be enough to account for the tax you owe at your tax bracket. You may have to pay more tax on the withdrawal when you include the withdrawal on your income tax return for that year. You’ll also permanently lose the contribution room you originally used to make the contribution – with RRSPs, there is no option to “repay”, unless you are making the withdrawal using a program such as the Home Buyers’ Plan (to buy your first home) or Lifelong Learning Plan (to pay for your or your spouse’s education). Learn more about making RRSP withdrawals.

Visit GetSmarterAboutMoney.ca to learn about RRSP withdrawals, TFSAs and managing debt. Speak with registered financial representative or tax professional for advice to fit your personal situation.