Browsing Tag

RRSP withdrawal

Investing

Is It Wise To Put Money Back Into An RRSP After A Withdrawal?

If you had to withdraw funds from your RRSP in 2010, the good news is that you still have until March 1, 2011 to make a contribution to help offset your withdrawal. Although you will never get your contribution room back for the amount you took out, at least you won’t suffer as many tax penalties by putting some or all of the money back.

However, before you decide to put the money back, make sure that you can truly afford to do so. If you don’t already have some money set aside for emergencies, then it is probably better to refrain from adding any additional money into your RRSP. Why? Because you are just as likely to end up having to make another RRSP withdrawal and then it defeats the purpose of contributing to an RRSP altogether. Just be prepared to pay some tax in the Spring.

January 6, 2011

Taxes

Withdrew Money From Your RRSP in 2010? You Might Have An Unexpected Tax Bill

With the economy still uncertain, some Canadians have turned to their Registered Retirement Savings Plan (RRSP) as a source of funds. But there could be tax consequences on your 2010 tax return.

Lose your tax shelter: RRSPs are designed to help Canadians save for retirement and provide a tax shelter for the funds. You lose the sheltering benefits when you make a withdrawal.

November 27, 2010

Investing

The Best & Worst Time To Make an RRSP Withdrawal

Withdrawing from an RRSP can be an extremely expensive option due to the tax consequences. So, unless you are saving for retirement within your RRSP, or you are planning on taking advantage of the Lifelong Learning Plan or the First Time Home Buyer’s Plan, I would not recommend saving within an RRSP investment vehicle.

To illustrate this, suppose you are 25 years old and you have managed to save $5000 in your RRSP. You end up spending too much money over Christmas and find it impossible to keep up with all your bills. You decide to withdraw $2000 from your RRSP.

By doing so, you have lost $2000 worth of RRSP contribution room. You can never get this contribution room back.

As well, you will be subject to a withholding tax of 10% in all provinces (except Quebec where you would have to pay 21%) that would be taken off the top and sent to the government. So, even though you are withdrawing $2000, you would only get $1800 at the end of the day or even less in Quebec.

You will also need to add the full $2000 to your income for the current tax year, and then depending on your income tax bracket, you will likely have to pay more tax at the end of the year unless you deliberately make an RRSP contribution to offset the withdrawal.

February 25, 2010