- RRSPs are intended to save for retirement. Every dollar you withdraw today is a dollar that won’t be available when you retire.
- Funds taken from an RRSP will be considered income in the year in which it is withdrawn. The institution will withhold income tax based on a sliding scale, but depending on your income, they may not withhold sufficient tax. This could leave you with a large tax bill at the end of the year.
- Depending on the amount that is withdrawn from the RRSP, your increased “income” for the year may bump you into a higher tax bracket, which would increase your overall amount of income tax.
- RRSPs are exempt in a proposal or bankruptcy (except for contributions made in the last 12 months). This means that if you file a proposal or go bankrupt, your RRSP will not be affected. If you have already withdrawn RRSP funds to pay debts and later file a proposal or go bankrupt, those funds are gone – your Trustee cannot get them back. However, the Trustee could help take care of the income tax liability created by the RRSP withdrawal.
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