How advisors are helping clients tap into RRSPs tax efficiently amid COVID-19 Thumbnail

How advisors are helping clients tap into RRSPs tax efficiently amid COVID-19

Special to the The Globe and Mail – By Helen Burnett-Nichols

As some Canadians looked to make ends meet during the pandemic, accessing extra funds may have meant tapping into savings – and for some, withdrawing from their registered retirement savings plans (RRSPs) earlier than expected was the solution.

A poll of Canadian investors that Ipsos conducted on behalf of the Ontario Securities Commission’s Investor Office in the spring showed that while seven in 10 people would be able to pay for an unexpected expense of $5,000 with their current cash flow, 17 per cent said they would meet this expense by withdrawing funds from an investment account such as an RRSP, tax-free savings account (TFSA), locked-in retirement account, registered retirement income fund, non-registered investment account, or pension plan.

For advisors, that represents an opportunity to explore strategies to help clients withdraw money in a tax-effective manner and navigate options for rebuilding their retirement nest eggs ... 

Ngoc Day, financial advisor with Macdonald Shymko & Co. Ltd. in Vancouver, also had clients who withdrew from their RRSP during the pandemic – but it was part of a strategy to take advantage of the Home Buyers’ Plan, which allows purchasers to withdraw up to $35,000 to purchase a home without tax being withheld. Individuals are given up to 15 years to repay the funds into their RRSP.

For individuals who have lost jobs, she stresses a cautionary approach to RRSP withdrawal.

“You might get your job back later in the year, and suddenly you may – including the RRSP – now be pushed up to a higher tax bracket,” she says.

A strategy to mitigate this, Ms. Day says, is to withdraw in increments as needed.

“There’s no penalty to take a smaller amount and then take another small amount next month or two months from now. Nobody stops you from doing that,” she says.

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