Dipping into your Registered Retirement Savings Plan (RRSP) is not usually a planned move. Unless you have taken advantage of the Home Buyers Plan or Lifelong Learning Program, your withdrawal is considered income and will need to be reported on your tax return.
When you withdraw money from your RRSP, your financial institution or fund company is required to withhold a certain percentage of the funds for tax purposes. These percentages are set out by the federal government and they are not negotiable.
For amounts up to $5,000, you will have 10 per cent withheld. For amounts between $5,000 and $15,000, 20 per cent will be withheld. For withdrawals over $15,000, 30 per cent is withheld.
The withholding amount is meant to help with your tax liability but, in some cases, this amount will not be enough. It will depend on your other taxable income and deductions. Every taxpayer will be different.
Your financial institution or fund company will send you a T4RSP slip to report the income on your tax return. This slip will include the amount of tax withheld, which you will claim as a credit.
If you did make an RRSP withdrawal in 2012, you may want to do a rough calculation of your tax return before the April 30 deadline. Depending on your income for the year, you may be facing a tax bill as a result of this additional income.