During the pandemic lock-downs in Ontario, employees who were laid off or lost their jobs altogether were scrambling to make ends meet. People were looking for sources of cash flow, once employment insurance and CERB ran out, and wondering if it was possible to access money from RRSP's? The strange thing is - I'm still asked that question today. The repercussions of where the economy has gone are still felt by many. The reasons why would be a whole other blog post - let's see about that later.
It is possible to access money from your RRSP, but note that some plans may be "locked in" and inaccessible; depending how the funds were invested. These locked-in accounts are typical of corporate retirement plans. Some provinces have provisions to unlock these under specific financial hardships such as: shortened life expectancy, unusually high personal medical bills, or facing eviction or repossession of your primary residence. It's best to speak with a licensed financial advisor to get details about your province and your specific circumstances. Locked-in plans are designed to "force" participants in having some retirement savings by age 55 - at which point the possibility of unlocking starts.
If your plan was not locked, remember that when you withdraw funds, they count as income for the year in which the funds were drawn - you will be taxed according to your median tax rate. Because RRSP's are federally registered the CRA will ensure taxes owed are taken at the source. They use a sliding scale withholding tax: 10% for $5,000 or less, 20% for $5,001 to $15,000, and 30% for amounts over $15,000. If you are thinking of using RRSP's as a source of emergency cash, you need to consider the circumstances; it will be hard getting around withholding tax. You are also taking away from your retirement nest egg and you will have to consider putting away more when your finances stabilize to rebuild your savings. You may find it hard to regain the returns you accumulated over the years. There may also be fees above taxes, if you are taking out more then 10% of the total investment (the first 10% is fee-free but not tax-free, typically).
There are several factors to consider when you want to draw from your retirement savings and maybe there are other sources of cash flow that can be tapped into before digging into your nest egg. Can you access government grants for retraining, are there assets you could sell, could you rent a room or the basement of your home, is there a skill you can tap into working from home while you look for a better opportunity? By now you need to explore how to develop your emergency fund for when hardship hits again - to give you peace of mind and not hurt your retirement plans.
If you have questions about this or you want a better understanding how to prepare your financial future, I invite you to reach out - there's no cost to starting a conversation that could provide a financial education.
I wish you all a fantastic week!
Chuck