If you're in a year where your income drops significantly (due to job loss, parental leave, sabbatical, or business slowdown), withdrawing from your RRSP might cost you less tax than you'd expect. By timing an RRSP withdrawal during a low-income year, you can access funds at a lower marginal tax rate, then reinvest that money tax-free in a TFSA. This strategy works best when your income falls into a lower tax bracket than usual, effectively reducing the tax cost of accessing your retirement savings. Your marginal tax rate (the rate you pay on your next dollar of income) determines how much tax you owe when you withdraw from an RRSP. In Canada, marginal rates vary by province and income level. A withdrawal that would cost you 40% in tax during a high-earning year might only cost 20% or 30% during a low-income year.
Yes. The CRA requires withholding tax at source on all RRSP withdrawals (10%, 20%, or 30% depending on amount), but this is a deposit against your final tax bill. When you file your return, if your marginal rate is lower than the withholding rate, you'll receive a refund of the difference.
You still pay withholding tax immediately, but because your income is lower during parental leave, you may owe less tax overall when you file your return. EI benefits are taxable but usually lower than your regular salary, so your marginal rate drops.
An RRSP withdrawal increases your net income for the year, which could trigger a clawback of CCB or other benefits. Calculate the clawback amount before withdrawing, since the tax savings might be offset by lost benefits.
This depends on your long-term strategy. If you have both RRSP and TFSA room available, withdrawing from RRSP at a low tax cost to fund TFSA contributions can be tax-efficient. Use a tax calculator to model both scenarios for your specific situation.
Yes, but the withdrawal reduces your RRSP contribution room permanently (you don't get it back). Future contributions use your available room. You can contribute to your RRSP in any year, but you won't recover the room lost from the withdrawal.