It’s normal to want to get out of debt as fast as possible, but quick solutions can have long-term consequences. If you’re thinking about withdrawing from your RRSP to pay off debt, make sure you’re considering these four facts before deciding to dip into your retirement savings:
- RRSPs are intended to save for retirement. Every dollar you withdraw today is a dollar that won’t be available when you retire.
- Funds taken from an RRSP will be considered income in the year in which it is withdrawn. The institution will withhold income tax based on a sliding scale, but depending on your income, they may not withhold sufficient tax. This could leave you with a large tax bill at the end of the year.
- Depending on the amount that is withdrawn from the RRSP, your increased “income” for the year may bump you into a higher tax bracket, which would increase your overall amount of income tax.
- RRSPs are exempt in a proposal or bankruptcy (except for contributions made in the last 12 months). This means that if you file a proposal or go bankrupt, your RRSP will not be affected. If you have already withdrawn RRSP funds to pay debts and later file a proposal or go bankrupt, those funds are gone – your Trustee cannot get them back. However, the Trustee could help take care of the income tax liability created by the RRSP withdrawal.
Your financial past shouldn’t get in the way of your financial future. If you find yourself struggling to pay down debts, it might be time to get help. Our debt professionals are here to help create personalized debt solutions that meet your financial goals and set you on the road to debt freedom. Call 1-844-4GT-DEBT today or book online for your free consultation.