Early RRSP Withdrawls

As in life, too with RRSPs: there are always exceptions to the rule.

I mentioned yesterday that if you withdraw funds from your RRSP prior to retirement, you pay a hefty amount of tax on these funds.  However, the government has set up some programs to assist people in certain situations to temporarily withdraw these funds for use, and not have them taxed as income.  These programs include:

• Home Buyers Plan (HBP)
• Lifelong Learning Plan (LLP)

Home Buyers Plan

If you are a first time home buyer* the government will allow you to withdraw up to $25,000 from your RRSP when you purchase a home.  If you are part of a couple, each person may withdraw up to the full amount, for $50,000 total.  The intention is that you use this for your down payment, but it can be used for anything including, but not limited to: closing costs, renovations, furnishings, a trip to the Maldives, etc.

*Note: the government defines a first time home buyer as anyone who has not owned their residence in the last 4 years (approximately – see the CRA for exact conditions.)  So you may qualify even if you have owned a home previously, just not recently.

Two conditions to note:

• You cannot withdraw funds you have contributed in the last 89 days
• These funds have to be repaid to the RRSP within 15 years: the program is in effect a loan to yourself.

Lifelong Learning Plan

This is effectively the “Adult” version of the Registered Education Savings Plan (RESP).  A person can withdraw up to $20,000, with an annual limit of $10,000, from their RRSP in order to pursue full-time post-secondary studies.  Of course, there are conditions.  Check the CRA’s website to be sure.

There are similar conditions to the LLP:

• Same as the HBP, you cannot withdraw funds you have contributed in the last 89 days
• These funds have to be repaid to the RRSP within 10 years instead of 15 like the HBP.  However there is a grace period from repayment while you are studying full-time, and briefly following your studies.

Remember, if you’re interested in participating in these programs, they are a bit more complicated than the overview I’ve given here.  Consult the Canada Revenue Agency’s website, and speak to a financial professional.