RRSP Withdrawal Rules and Taxes (2024)

FAQs

RRSP Withdrawal Rules and Taxes? ›

You can make a withdrawal from your RRSP any time¹ as long as your funds are not in a locked-in plan. The withdrawal, however, is subject to withholding tax and the amount also needs to be included as income when filing your taxes. There are situations in which tax-deferred withdrawals can be made from your RRSP.

For residents of Canada, the rates are: 10% (5% in Quebec) on amounts up to $5,000. 20% (10% in Quebec) on amounts of $5,000 and over, up to and including $15,000. 30% (15% in Quebec) on amounts over $15,000.

If you have an RRSP and you move out of Canada permanently, you can either choose to: Make a lump sum withdrawal and deregister your RRSP. You'll have to pay withholding tax and income tax on the amount withdrawn. Keep your RRSP and have your investments grow tax-deferred for Canadian tax purposes.

It is a tax-deferred retirement plan from what you describe. As such, you would only pay tax on the distributions from the retirement plan. Income earned in the plan would not be taxed until you took a distribution.

At any age up to the end of the year you turn 71, you can choose one of the following options for your RRSPs: You can transfer your RRSP funds to a registered retirement income fund (RRIF). Starting in the year after the year you establish a RRIF, you have to be paid a yearly minimum amount.

You can choose to withdraw all the funds in your RRSP as a lump sum, but the withdrawn amount will be subject to withholding tax. The withholding tax gets taken out of your withdrawal immediately and paid to the government. Additionally, this amount must be added to your income when filing your taxes.

Canadian citizens who live and work in the United States may contribute to an RRSP as long as they keep within the contribution threshold. Canadians may keep their RRSP intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes.

If you're a non-resident with an RRSP, RRIF or a locked-in retirement plan, you are subject to Canadian non-resident withholding tax of 25% on withdrawals you make from these registered accounts.

If you now find yourself in a lower tax bracket, such as when on maternity leave, and made RRSP contributions in the past, you may want to consider withdrawing from your RRSP to make a TFSA contribution. However, remember that funds withdrawn from your RRSP can't be re-contributed later.

Expert Answer: The U.S. equivalent of an RRSP is known as an Individual Retirement Account (IRA). Unfortunately, RRSP assets cannot be rolled over to a U.S. IRA. If you withdraw funds from your RRSP, the entire amount of the withdrawal is subject to Canadian withholding tax.

Can US citizens have an RRSP in Canada? ›

Yes, US citizens can maintain or open new RRSP accounts while living abroad, provided they have earned income that is subject to Canadian tax. It's essential, however, to consider the tax implications in both Canada and the US.

When withdrawing from your RRSP before it matures (age 71), the financial institution automatically puts aside a percentage for taxes. The rate of tax depends on how much you withdraw: 10% is held back for withdrawals up to $5,000. 20% is held back for withdrawals between $5,000 and $15,000.

Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. However, you generally have to pay tax when you cash in, make withdrawals, or receive payments from the plan.

Our response: Canadian citizens that have become non-residents can continue to hold RRSPs after leaving Canada.

The lesser of the two following items: 18% of your earned income in the previous year. the annual RRSP limit (for 2023, the annual limit is $30,780)

No Withholding Tax From RRIF Minimum Withdrawals

One difference between RRSP withdrawals and RRIF withdrawals is that there is no withholding tax deducted from RRIF minimum withdrawals. However, the withdrawal amount will be included in taxable income on your tax return.

However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2. The additional tax is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years you participate in the SIMPLE IRA plan.

For example, withholding tax on periodic pension income you receive is often taxed at a rate of 15%. You may, however, need to file a tax return and pay tax in Canada on certain types of income, such as capital gains on Canadian real estate. You may also need to pay tax in your country of residence.