Should I Cash Out My Canadian RRSP?

Whatever you decide to do, make sure you have a plan. So the plan goes beyond if you, even if you do cash out your rrsp or even if you don't have a plan about what you're going to do with that money. So putting money just into an RRSP and doing nothing with it is not going to get you where you need to go objective financially, probably. So you need to have a plan about what you're doing with your money rather than just playing, placing it in an instrument or taking it out of an instrument.

Should I cash out my rrsp? We're going to talk about four points about that today. I'm Liz Lamond and I'm here with Dan Allen. We're both infinite banking practitioners with the Nelson Nash Institute. Dan, the first thing that we want to talk about is educating yourself. That's the really first step before you make a decision about whether or not you should cash out your RSP is educate yourself. Very, very important that you can understand what your different options are so that you can go and have better informed decisions with whoever you're going to talk to.

Totally agree, Liz. That's a key element. Whatever you do financially in life, it really makes a difference if you take the time to really understand what is it you're doing and how may this impact you financially. And when it comes to RRSPs, you should be spending time understanding how they work, what are the mechanics of them, what happens if I take my money out early, what happens if I leave it in? All those things are things that are really important, not just with RRSPs, but anything financially.

And when you have a little bit of an understanding and you've educated yourself, we'd encourage you to go and seek advice of a certified tax professional. Now, we just want to be really clear here that you need to be mindful of who you go and seek advice from with regard to your rrsp. Make sure that they're independent of any products that are being sold and that you have somebody who has qualified applications to be able to give you sound tax advice so that you understand the full tax implications of any choices that you're going to make, whether that's leaving money inside the RSP or taking it out so that you really understand not only now tax implications, but future tax implications, so that you can make a really great informed choice.

It's really important. We're not tax professionals, so that's what the way I direct tax. Everyone that asks me this question, and we get this question a lot, should I cash out my RSP One of the first things I'll tell them every time you need to seek the advice of a tax professional, let's make sure we're always directing people towards that resource and that'll help with education. That'll help them educate themselves on what they need to know about RRSP before they cash it out.

That leads into our third point. There are two things to really understand about an RSP in terms of withdrawal. The first is what would the tax that would be owing if you were to withdraw your RRSP now? And also within that is would it make a difference if you took it over a short period of time or whether you took it over a number of years? So you're going to need to get some advice around that from a tax professional so that you understand the tax implications of doing that now, but also understanding the tax implications of doing that at perhaps retirement or passive income stage so that you understand that there will be tax to pay not just on what you're putting in, but also the growth within the rrsp. So getting some really great tax planning on how that would work for you and what the comparison between those two different situations are so that you can make a decision about whether or not you should cash out your rsp.

Yeah, that's true. And one of the things I always share with people is if you think about it from a perspective of what would you rather be taxed on, the seed or the harvest? And that's just one of the things I understand about the possibilities of how you're going to be taxed in an RRSP is that if you're fortunate enough to do really well within whatever product you have your RSP in and you make great gains, you're just going to be taxed on all of that gain too. So it's just something that's really important to understand as you consider whether or not RRSPs are the place to have your money.

Brings us to our fourth point, which is kind of, I think flows fairly logically from all of this is whatever you decide to do, make sure you have a plan. Even if you do cash out your rsp or even if you don't have a plan about what you're going to do with that money. Putting money just into an RRSP and doing nothing with it is not going to get you where you need to go objective financially probably. So you need to have a plan about what your doing with your money rather than just placing it in an instrument or taking it out of an instrument. Just be aware that you need to have other education perhaps around what you can do with that money to grow your wealth on an ongoing basis so that you feel like your money is working for you.

I personally have been taking money out of my RRSPs and I always work with an accountant. I understand what is my tax burden going to be in that particular year and is it something that I'm comfortable with? And I've made that choice and it does work because I just, you know, know how the process works and I know what my withholding is going to be and all those pieces that I need to know because I've educated myself on this product and so it's good to get education and then you can make informed decisions. Is it the right thing for me or isn't it the right thing for me? I've made a choice that it is the right thing for me and that's what I'm doing because I don't like all the restrictions that are on me when it's in there. And I've looked at ways that I can go ahead and use that money where I don't have the same restrictions. So that's just some of the reasons why I've done it. But for you, really take the time to educate yourself and that's a key thing. And then have that plan. Like Liz said, have a plan. Even if you leave your money in your rrsp, have a plan, what are you going to do with it? How is it going to make a difference for you and your family? And if you take it out, just as important to have a plan with what you're going to do with it. So we'd love to get your comments like, what are your thoughts around should I leave my money in my RSB or should I take it out? Just drop those comments in below. We'd love to hear what those are.