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Home TAX TIPS Our Tips How to access your RRSP funds

How to access RRSP funds without paying tax?

Just a few weeks after RRSP contribution deadline for the 2010 tax year, many of us are struggling with the mixed feelings. Yes, we contribute to defer our taxes and save for retirement, but worry that the funds are locked in poorly performing investments to which we have no access unless willing to pay tax immediately. Should we continue this annual routine of stashing all our extra savings to lower our taxable income, or perhaps use the money for more current needs?

 Before making a decision, consider ways in which you can use your RRSP before retirement. First, nothing new, but surprisingly rarely discussed. Self directed RRSP mortgage. Not to be confused with the first time home buyers plan, this option is available to any home owner, who is willing to hold his own mortgage within his RRSP. Mortgages, like any other financial instruments such as GICs, bonds, or stocks, are RRSP eligible. They have to be insured by CMHC and have to be repaid just as any other commercial mortgage. The only difference is that you are paying interest to your own RRSP instead to a bank. Is this a good strategy? Well, if your investment within RRSP produces a much higher interest that you pay on your mortgage then certainly not. However, if your RRSP portfolio is consistently underperforming or if you park your money in a low interest account every year, hoping that one day you’ll find this ideal investment, then your own mortgage may be it. One word of caution - when shopping for such mortgage be prepared to find a specialist at your bank who is well familiar with the process. It is not a common technique and you may get many raised eyebrows before being directed to the right place.


Another good strategy is for those who are actively looking for income splitting opportunities. If one spouse earns significantly higher income than the other, then by setting up a spousal RRSP, part of the funds can be directed to your spouse’s retirement plan. He or she can withdraw such contributions after 2 year holding period, pay less tax on the withdrawal and have access to the funds before retirement.

And there is also a life long learning plan, which still enjoys less publicity than the similar home buyers plan. You can withdraw up to $10,000 each year and no more than $20,000 every 4 years. The repayments start five years after first withdrawal and are spread over 10 years. Still, for those who plan to continue their education, it makes a lot of sense to contribute to an RRSP before commencing a post secondary program and then use the money to fund their own education.

The wildly advertised first time home buyers’ plan also deserves a mention, as it is an effective way to use up to $25,000 of RRSP funds per person towards the purchase of a first home, repayable after 2 years over 15 years.

These techniques offer some ideas as to how to access your RRSP funds without tax consequences, but sooner than at retirement. They clearly have to fit your needs and you should evaluate their suitability thoroughly, but they should be part of your tax planning.

Eva Kupiec, CMA

Beata Kurpiewski, CGA

Principals of Professional Accounting Office at 3461 Lakeshore Blvd. W.