How To Withdraw RRSP Without Paying Tax, Canada

Registered Retirement Savings Plans (RRSPs) contributions are the best way to save for your retirement in Canada.

The best thing about them is that you do not have to pay tax on the money you contribute. You, however, cannot withdraw the money until you retire. If you do, then you are taxed – but there are some exceptions.

How to Withdraw RRSP without Paying Tax

But suppose you want to make an early withdrawal from your RRSP while avoiding the penalties? Read on for details of how to withdraw RRSP without paying tax.

Best Ways To Withdraw Money From RRSP Without Paying Tax

You may make tax-deferred withdrawals from your RRSP if the funds are used to purchase your first home or support your education.

1. Tax-Free RRSP Withdrawal: Home Buyers Plan (HBP)

Canadian law allows you to borrow some money from your RRSP if you and your spouse buy a home for the first time. This is referred to as the Home Buyers Plan (HBP). It allows you and your spouse to each take $35,000 from your RRSP.

To qualify as a first-time homeowner, you need to have not purchased a home in the last four calendar years. Therefore, you can get $70,000 if you and your spouse both contribute to the RRSP. See First time home buyer RRSP withdrawal form.

The amount is to help you pay a deposit on the house you intend to buy. You will, however, have to pay back the money within 15 years. The money you take from the RRSP won’t be subject to any taxes, and you will have avoided enduring a significant hit.

Failure to make the minimum repayment will see the balance treated as part of your annual income tax.

MORE >> First-Time Home Buyer RRSP Plan

2. Tax-Free RRSP Withdrawal: Lifelong Learning Plan (LLP)

Another way you can withdraw from your RRSP without paying tax is by taking advantage of the Lifelong Learning Plan. Under this plan, you can remove an amount and use it to go back to school to gain new skills or change your career.

The plan allows you to withdraw up to $10000 each year. This amount doubles if you and your spouse both contribute to the RRSP. You must be a student and a registered full-time student in a valid educational program to qualify for this.

The money you withdraw needs to be paid back within ten years at an annual rate of 1/10th of the total amount withdrawn. Like the Home Buyers Plan (HBP), payment deficits are added to your yearly income and taxed.

3. Early RRSP Withdrawal: Low or No Income

The last way you can withdraw money from your RRSP without paying tax is to do that when you have minimal or no income at all.

Your financial institution, be it a bank or other finance company, will withhold the tax on behalf of the Canadian Revenue Agency (CRA) whenever you make a withdrawal from your RRSP. That is independent of whether you have a low or high income.

Now, there are both federal and provincial maximum amounts you can withdraw from your RRSP. For 2022, the maximum federal amount is $14,398. Therefore, drawing this amount or less from your RRSP will see you get a tax refund.

The maximum amount you can withdraw varies from province to province, and you’ll need to know your province’s maximum amount to avoid tax.

The Implications of Early RRSP Withdrawal

Understanding the implications and tax consequences of early RRSP withdrawal will help you determine whether or not to do so. If you take money out of your RRSP early:

1. You permanently lose your RRSP contribution room

When monies are withdrawn from an RRSP, the contribution room utilised to make the contribution is permanently lost.

2. RRSP withdrawals are taxed

You pay a withholding tax based on the amount withdrawn and the province in which you live.

You must disclose your withdrawals as income on your tax return. Current income above retirement income means greater taxes today.

3. You lose tax-deferred compound interest

Due to the compounding effect of RRSP contributions, even a little withdrawal now may have a significant impact on your future savings.

FAQs: How To Withdraw Money From RRSP Without Paying Tax

Can I Transfer RRSP to TFSA without Penalty?

Yes. If you have a low taxable income, you can withdraw from your RRSP and transfer them to the TFSA without paying taxes.

How Much Tax Do I Pay on a $50,000 RRSP Withdrawal?

You will pay a withholding tax rate of 30% in some provinces but 15% in Quebec.

Does Withdrawing from RRSP Count as Income?

Yes, the amount you withdraw from your RRSP count as income. That’s why they are subject to tax.

How Can I Take Money Out of My RRSP without Paying Taxes?

The way to avoid paying taxes when you withdraw from your RRSP is to use the Lifelong Learning Plan (LLP) and first-time Home Buyers Plan (HBP). The other instance you won’t be taxed is if you have little or no income.

Do You Pay Taxes on RRSP after 65?

The first $2,000 of pension income a taxpayer receives after they turn 65 is eligible for a pension income amount tax credit. This may reduce some of the taxes owed. Eligible pension income includes RRIF withdrawals, while RRSP contributions are not considered eligible.

How Much Tax Do You Pay if You Withdraw from RRSP?

If you withdraw funds from your RRSP, the government will charge a withholding tax. The rate you pay is determined by the amount you withdraw and where you reside. If, for example, you take $5,000, your withholding tax rate is 10%. The withholding tax rate for withdrawing between $5,001 and $15,000 is 20%.

Final Words: How to Withdraw RRSP Without Paying Tax, Canada

It is important to do your research before you start the process of withdrawing your RRSP funds. There are a few different methods that you can use, and each one has its own benefits and drawbacks.

By knowing the options open to you, you can make the best decision for your financial future. While not always a good idea to withdraw from your RRSP, the ways we have discussed above will help if you want to avoid taxes. Remember to always proceed with caution, though.

Have you tried out these methods for withdrawing your RRSP without paying tax? Let us know in the comments how it went!


> How to Get a Mortgage in Canada
> How to get a mortgage with Bad Credit
> First-Time Home Buyer Incentive
> Home to Get Pre-approved for a Mortagage


Charity (Charee) Oisamoje is the founder of TheFinanceKey - TFK. She leads the editorial team, which is comprised of subject-matter experts.

Her professional competencies and expertise make her qualified on this topic. She is an expert at collecting details, verifying facts, and making complex subjects easy to understand.

Backed by Solid Credentials: ✔️MBA in Finance ✔️Canadian Investment Funds (IFIC) Graduate ✔️Masters Degree in International Business ✔️Chartered Professional Accountant (CPA) Candidate ✔️Chartered Insurance Professional (CIP) ✔️BSc Accounting

Learn More >> About Page

Leave a Comment

Your email address will not be published. Required fields are marked *


Learn How to Build Wealth and Attain Financial Freedom! 

For the latest financial wisdom, straight to your inbox.

No thanks, I don't want to build wealth
Scroll to Top