Canadian RRSP ER question

[johnny_b123]

my google-fu has not found the answer to this, if anyone knows of a good resource, article or forum post please point me to it:

Right now my RRSP and my spouce's RRSP have nothing in them and full contribution room. Our money is all in TFSAs and taxable accounts.

If I were to contribute to RRSPs, I'd get a nice tax break now, however what happens if I stop a steady, high paying, salaried job at my planned ER age of 40? Can I then start withdrawing from those RRSPs without any penalties? (assume the RRSPs hold typical index etfs)

The RRSP's plan of tax deferral for high income now (>100k) and low income in the future (<40k) could work well in this scenario, unless I have to pay penalties. If I have to do majic RRIF things and various other lock in options that prevent me from, or make it a buearracy mess from ever taking on a high-paying salary job again, it probably isn't worth it. I'd rather not make final decisions.

Hopefully that question makes sense to everyone, again if an answer exists that you're aware of, send me a link and I'll gladly read it.

Thanks!

[cdnstache]

If I were to contribute to RRSPs, I'd get a nice tax break now, however what happens if I stop a steady, high paying, salaried job at my planned ER age of 40? Can I then start withdrawing from those RRSPs without any penalties? (assume the RRSPs hold typical index etfs)

This is the main benefit of RRSPs - Tax deferral. You put the money in your RRSP now and claim the tax break while you're in a higher tax bracket and withdraw the money in retirement when you're in a lower tax bracket. There are no penalties, but you have to pay tax on it (lower tax than you would pay now).

This calculator will show you how much you can get back on your taxes with contributing to your RRSP: http://www.ey.com/CA/en/Services/Tax/Tax-Calculators-2015-RRSP-Savings

[Al1961]

The only thing you might have to look out for, penalty wise, is withdrawals from a spousal RRSP if any contributions have been made in the two years immediately preceding the withdrawal. CRA tends to disallow the original contribution and then assess interest and penalties on the taxes not paid.

Other than that, there is no age-based penalty for "early" withdrawal from an RRSP, unlike the US 401k.

Al

[johnny_b123]

Thanks guys.

According to that calculator, it seems to refund about 40 cents on a dollar, for each dollar added to an RRSP... so if I place $10k in an rrsp, not only do I have the $10k to invest until retirement but also and additional $4k in the form of a refund, which can go into some other account.

I found there's a form, T1213 which allows you to specify how much you will be deducting so you are taxed less by your employer. all things i need to think about now.

Thanks again