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?
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.