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When to borrow from your RRSP

There are two ways to borrow from your RRSP. First is through the RRSPHome Buyers’ Plan, for first-time home buyers, and second is throughthe Lifelong Learning Plan, for educational expenses.

There are two ways to borrow from your RRSP. First is through the RRSP Home Buyers’ Plan, for first-time home buyers, and second is through the Lifelong Learning Plan, for educational expenses.


These Canada Revenue Agency programs allow you to withdraw funds without a tax penalty. If you ‘borrow’ outside these programs before retirement to pay for a trip or a car, the withdrawal is considered income in the year you received the funds and you’ll pay hefty taxes.


Check some Government of Canada websites for full details on both of these plans.


These plans make sense for some people, but there are drawbacks. First, when you take money out of your RRSP, you lose the power of compounded interest and re-invested returns on those funds. Money grows exponentially over time and when you reduce the money in your RRSP account, you earn less interest and sacrifice potential returns.


There are other pitfalls as well, make sure to research them all and realize the primary benefits of the plans are home ownership and education — weigh the pros and cons to make an informed decision.

 
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