When you can withdraw money from your group RRSP
Your employer may restrict when you can take money out of your group Registered Retirement Savings Plan (RRSP).
However, any amount you withdraw will be included as income for tax purposes. You’ll also pay a withholding tax on the amount you withdraw and lose the contribution room you originally used to make your group RRSP contribution.
For these reasons, and the fact you may be losing out on compound investment returns, taking money out of your group RRSP before retirement can really impact your savings. It’s best to consult with your advisor or member guide before doing so. You can also use this handy tool to see the impact.
Withdrawing money from your RRSP without paying taxes
RRSPs are intended for retirement income, but they can also offer some flexibility when used for specific reasons. If you’re buying your first home or paying for your education, and your plan permits such withdrawals, you can take funds from your group RRSP without paying withholding tax or including the funds in your income.
Home Buyers’ Plan (HBP)
If you meet the Canada Revenue Agency’s (CRA) eligibility rules, you can withdraw up to $35,000 to pay for your first home.
You must re-contribute the money to your group RRSP starting 2 years after you withdraw it, and you have 15 years to pay it all back. The CRA will send you an annual statement with your balance, payments made and the minimum payments for the next year.
Lifelong Learning Plan (LLP)
To help pay for full-time education or training for you or your spouse or common-law partner, you may withdraw up to $10,000 per year to a lifetime maximum of $20,000 if you meet the criteria.
You have 5 years to begin to re-contribute the money back to your group RRSP, and 10 years to pay it all back. The CRA will send you an annual statement with your balance, payments made and the minimum payments for the next year.
Visit the CRAOpens a new website in a new window’s website to learn more important details and requirements to consider.
Withdrawing group RRSP money at retirement
You can keep contributing to your group RRSP until Dec. 31 of year you turn 71. At the end of that year, you must withdraw the money and have 3 options to use the money for your retirement.
You can withdraw all the money from your group RRSP. You’ll pay a withholding tax and the full amount will be included in your income which could result in you paying a large amount of tax.
Convert your group RRSP to a RRIF
You can convert your group RRSP to a registered retirement income fund (RRIF) PDF | 4.9 MB starting at age 55. However, once your convert it, you can’t change it back to a group RRSP.
Once you convert to a RRIF, you can start receiving payments from it. The CRA sets the minimum amount you must withdraw based on your age and a percentage of the market value of the RRIF.
You’ll pay income tax on any money you receive from your RRIF but not pay a withholding tax.
Purchase an annuity
You can convert your group RRSP to an annuity which can provide you with guaranteed income for a specific period of time or the rest of your life.
You won’t pay a withholding tax and the money you receive from the annuity will be taxed as income to you.
The RRSP withholding tax
This tax is withheld by your financial institution when you take money out of your RRSP and it’s passed to the CRA. The rate varies depending on how much you withdraw and the province where you live.
What happens to your group RRSP money if you leave your employer
If you contributed to a group RRSP, once you leave your employer you can:
- Transfer that money to an individual RRSP in your name
- Transfer the money to a RRIF
- Use the money to purchase an annuity
- Withdraw the money as cash if there’s no locked-in requirement. It will be taxed as income in the year you receive it.
If your workplace savings plan was with Canada Life, you can seamlessly transfer your account to NextStepTM.