RRSP withdrawals help pay for unexpected expenses

Unused RRSP contributions can be deducted against withdrawals

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RRSP withdrawals can help pay for unexpected expenses (Getty Images / Peter Engelsted Jonasen)

RRSP withdrawals can help pay for unexpected expenses (Getty Images / Peter Engelsted Jonasen)

Q: I am 68 and retired. I have about $92,000 in RRSPs and I also have a very good pension. I would like to take some money out of my RRSP to replace the roof on my house. I have about $7,000 in unused RRSP contributions this year. Can I use that unused amount to offset the amount of tax I will pay if I make a lump sum withdrawal from my RRSP to pay for my roof?

—Karen

A: Karen, this is a great question. As you are well aware, anytime you withdraw money from your RRSP it’s taxable. But paying for a new roof is an exceptional cost and, considering you have a great pension, it does appear wise to make a withdrawal from your savings to pay for the up keep and maintenance of your home (consider it an investment cost that helps keep the value of your home from falling).

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But because this is not simply a real estate issue, I asked MoneySense contributor and fee-only Certified Financial Planner, Jason Heath, to provide some insight into the ramifications of doing this.

According to Heath, even though you’re retired, your unused RRSP contributions can be deducted against your income—including that RRSP withdrawal. So if you have $7,000 in contributions from previous years that you haven’t yet deducted, you can claim them this year or in a future year, whether you take an RRSP withdrawal or not. The $7,000 deduction will offset $7,000 of income, thereby reducing the tax you’ll pay.

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4 comments on “RRSP withdrawals help pay for unexpected expenses

  1. Shouldn’t one also add that in order to claim a $7000 RRSP contribution (to offset the $7000 to be withdrawn) one also has to contribute $7000 contribution to the RRSP! The response given is very misleading.

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  2. True,the article makes it sound like the $7000 unused contribution room can just be used against $7000 in income.

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    • To answer your concern David Metzak-Jane Naisbitt and PVJ:
      Yes. She would have to contribute $7,000 to her RRSP in order to offset the tax she will pay when she withdraws $7,000 to pay for her new roof. But our reader has already made that contribution in a previous year. She just hasn’t claimed that contribution. (To clarify: unused contributions occur when you make a contribution to your RRSP but don’t claim this contribution. See the CRA site for more information on this http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/cntrbtng/nnsd-eng.html).
      It sounds like you may be confusing contribution limit or room with unused contribution. Karen’s unused contribution is $7,000 because that’s what she has already contributed but not claimed. We do not actually know what her contribution limit is (and, as you know, this is based on a percentage of your yearly earnings).
      Hope this helps.

      Reply

  3. There seems to be an assumption in the answer that Karen has RRSP contribution room available. Given her “very good pension””, this may in fact be the reason why the unused room exists at all. If this is the case, she should be concerned with a potential CRA penalty given that this amount is >$2,000.

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