RRSP's question

[Joey Tribbiani]

I've encountered my first severe financial hardship and I've considered all other avenues to get out of this situation. My only option at this time is to withdraw some money from my RRSP's. I've never had to deal with this before and I don't know if there are any penalties? Is there a timeframe to pay back the money?

Any experiences or knowledge in this area would be much appreciated.

Joey T

 

[Anderson]

You can cash it in pretty easy and they take 20 % I think off the top and you can also re pay it within a set period I am pretty sure. If you need the money also , you could consider a loan against it maybe ( but I could be wrong here )
Good luck

 

[fuji]

The 20% is just a "with holding", at the end of the year you have to declare the money you take out of your RRSP as income and pay tax on it. If it's more or less than 20% you settle up with CRA via refund or additional payment (ie: on yoru regular tax return). This is because you didn't pay tax on the money when you put it in the RRSP originally. You also permanently lose the RRSP headroom: you can't turn around and repay the RRSP other than via your ordinary annual RRSP contribution limit.

Other than paying the tax and losing the contribution room there's no penalty.

 

[Timbit]

And you can't take a loan against an RSP.

Timbit

 

[Anynym]

Other than paying the tax and losing the contribution room there's no penalty.

From an RSP perspective there's no penalty. There might be other issues if the RSP is invested in some long-term fund which charges extra fees for early withdrawal. And there will likely be some relatively small fees (e.g. up to a couple hundred bucks) associated with handling the "deregistration" of the funds. Otherwise, as others have described, the withholding (I think 20% applies to withdrawals over $10,000; lower rates apply to smaller withdrawals) is going to show up on a "T4RSP" as income taxes paid on the funds when you file your taxes.

 

[gww]

Regardless of how much they withhold (10-20%) the amount you withdraw is included in your income and you will pay tax on it. There is no options to w/d temporary and repay.

 

[m91us]

Withdrawl RRSP money in incredments of $5000 or less. The witholding tax will be only 10% and that means $500 (on $5000 RRSP withdrawal) will be paid up front to the gov't. See a tax professional if you want to take full advantage of your RRSP withdrawals if your 2007 income is $20,000 or less.

 

[The Fruity Hare]

If you are going through a difficult time financially right now, it possibly means your income will be lower than other years. Once you withdraw the funds, it will be considered income which will need to be declared as such. You will be taxed accordingly next April. Depending on your income level, the 20% will be adjusted up or down.

 

[Joey Tribbiani]

Thanks for all the help gents. As much as it pains me, I will have to withdraw some money, it looks like the biggest ball-breaker is taxes.......that's a shocker!!

Thanks again.

Joey T

 

[Doctor Zoidburg]

Joey,

......have you asked Ross Phoebe or Rachael for a loan?


Or, maybe you can ask your Uncle John to help you out?

Uncle John = www.uncle-john.notlong.com

 

[Meister]

Thanks for all the help gents. As much as it pains me, I will have to withdraw some money, it looks like the biggest ball-breaker is taxes.......that's a shocker!!

Thanks again.

Joey T

If it's short term and you can repay you may want to think about these credit card companies offering cheap introductory open loans (lines of credit) just for signing up. I think MNBA or something like that.

 

[raven@mirage]

They say at all cost do not cash your RSP, if you are its best to under 5,000 that way your paying around 10% . I had to cash mine out and I made promise to myself to pay it back before the new year. I am half way there.

but it's not reccomneded since you will taxed on it, and your bank may have huge pentalty fees.

 

[zekestone]

Thanks for all the help gents. As much as it pains me, I will have to withdraw some money, it looks like the biggest ball-breaker is taxes.......that's a shocker!!

Thanks again.

Joey T

Yeah, RRSPs don't reduce your taxes, they just DEFER what you pay in tax.

 

[Malibook]

Unless the money is for your first home, there is no paying it back.
That RRSP cap space is gone forever, although you can fill up any unused space carried forward from previous years.

If you are still working and just need some extra cash, best to look at other options first.

Someone with little to no income should cash in the RRSP because the tax rate will be as low as it can be or ever will be, unless you are highly confident you have fantastic investments.

If I was going to take a break from work for a year or 2, even though I wouldn't need the RRSP cash, I would cash in as much RRSP as I could within the lowest tax bracket.

 

[Keebler Elf]

Yeah, RRSPs don't reduce your taxes, they just DEFER what you pay in tax.

That's not true. They reduce your taxes this year. When you cash them in after you retire, your income in all likelihood will be much lower than it is now. As a result, you'll pay less tax on the money then than you would pay now.

Thus, RRSPs reduce the amount of taxes you pay.

 

[Jade4u]

Make sure it's not locked.

Even if it is locked you can still get it. I know I did it years ago. Just come up with a very credible excuse and argue with them a bit. What they will end up doing once they accept your excuse is have you write a letter stating why and have you sign it and they will take it to the manager and give you the money after. But, you have to be stubborn. Bottom line though is you can still access the money.

 

[Keebler Elf]

Bottom line though is you can still access the money.

I dunno 'bout that...

 

[toolioiep]

Even if it is locked you can still get it. I know I did it years ago. Just come up with a very credible excuse and argue with them a bit. What they will end up doing once they accept your excuse is have you write a letter stating why and have you sign it and they will take it to the manager and give you the money after. But, you have to be stubborn. Bottom line though is you can still access the money.

It's true - a certain percentage of locked in accounts can be accessed through 'extreme hardship'. It requires some documentation and a lot of hassle, but it can be done.

 

[scrooge]

Are you a post-secondary student? In addition to the Home Buyer's Plan (like Mailbook said), there is also the Lifelong Learning Plan. Under either of these, you can effectively get a loan from your RRSP.