Smooth out your income

Published on monsense.ca  |  March 15, 2012

RRSPs aren’t just for retirement

If you’re having a year or two where you’re making much less money than normal—say you’re on maternity leave, you lost your job, or you’re backpacking around Asia—you might want to think about pulling some money out of your RRSP. This may sound sacrilegious to many financial planners, who insist you should never tap your RRSPs during your working years. But in some cases, the savings on income tax is so sweet that it’s worth it.

“The RRSP is misunderstood as being an account that is meant solely for retirement,” says Jason Heath of E.E.S. Financial Services in Markham, Ont. “I look at it as a tax-deferral and planning vehicle.”

For example, say a woman is on maternity leave, doesn’t qualify for Employment Insurance and has no other income. She could pull some money out of her RRSP to help cover expenses. “If she took out around $10,000—the amount of your personal credit—she wouldn’t pay any tax on it,” says Deborah MacPherson, a Calgary-based partner at KPMG. If she took out a few thousand more, it would still be taxed at a low rate, possibly lower than she would pay in retirement. read full article