Selling RRSPs to Pay Debt?

[stealth]

Is it advisable to sell some RRSPs to pay off debt? Taking into account you will be paying taxes on the RRSP.

[roopi]

I would say no but it depends on your debt/interest rate. Take a look:

http://www.milliondollarjourney.com/should-i-withdraw-from-rrsps-to-pay-credit-card-debt.htm

Also just Google 'Selling RRSPs to Pay Debt?' and there is quite a few discussions on the topic.

[Skyline_Addict]

If you're able to carry your debt load from now to a considerable horizon, I wouldn't cash your rrsp.

This should be a last resort. If you withdraw from rrsps you could be taxed as high as 30%.

[SJW]

Yah dont cash RRSP. Get a second job if you wanna pay debt.

[Kloubek]

^^ As said, you will incur a super high tax rate.

Your equation goes like this:

Debt interest until being paid off = X.
Tax paid on early RRSP withdraw, plus average rate of return on those rrsps you no longer have = y.

If x>y, pay off the debt with your RRSPs.
If y>x, pay the debt off gradually with cash.

[stealth]

Originally posted by roopi
I would say no but it depends on your debt/interest rate. Take a look:

http://www.milliondollarjourney.com/should-i-withdraw-from-rrsps-to-pay-credit-card-debt.htm

Also just Google 'Selling RRSPs to Pay Debt?' and there is quite a few discussions on the topic.

Thanks, they had a good calculator on there.

I was just contemplating the idea, as I always thought it was a bad idea.

[Xtrema]

Unless it's from a loanshark and there are lives or limbs in question, don't do it.

Try to see if you can consolidate at a lower rate.

[stealth]

Now another question here is, say you have cash in a RRSP account that is not invested in anything (stocks were sold), can you transfer the money into a TFSA without paying taxes on the money?

[Xtrema]

No

Different vehicles all together.

Once fund leaves RRSP, it will count as income and you'll get taxed. You can choose to throw it in TFSA and whatever you make there you won't get taxed.

[broken_legs]

You need to take some things into account before making a decision on this


What is your income in the year that you are going to take out your RRSP money?

You'll get taxed but you'll get it back at the end of the year. It gets taxed like normal income. So if you dont make much and you are in a low bracket and you arent taking out a ton of money, you're not going to pay much tax.

Now if you are making big dollars and in the top tax bracket you're going to lose more of that money to taxes.


If the amount of money you're going to pay in interest is more than the amount you're going to pay in taxes then I would do it.

Make a spreadsheet and compare all the costs of doing each. Keeping money in an RRSP simply because its an RRSP is stupid. If its not making you any money, and you are paying more in interest on some other debt take care of the debt.

[403ep3]

I thought of the same thing but did some research and it is not worth it! Carry the debt and get a new job if you can like the above people posted above.

[Tik-Tok]

I would never do it. I've told my wife a few times, we would sell the house, and downgrade before I touch my RRSP's. Don't fuck with your future.

[Team_Mclaren]

all depends on your debt, how much you want to take out and how much you'll make this coming year. The initial withholding tax is a big deterrent, but if your income is low enough, you'll get most back after you file your taxes.

In most cases its not exactly worth it to take it out, unless you are buying a house of course.

[97'Scort]

If you're cashing in to pay for school or education related costs, you can cash in a significant amount (up to $25,000 I believe) over the course of your schooling. This amount must be repaid over the 10 years following graduation and incurs NO tax for withdrawl as long as it is paid back in that time frame.

Personally, I'm not making any money right now, and I don't qualify for a student loan. I withdrew $5000 to pay down a chunk of my line of credit to keep the bank happy, and I didn't get taxed a dime.

[Xtrema]

Originally posted by 97'Scort
Personally, I'm not making any money right now, and I don't qualify for a student loan. I withdrew $5000 to pay down a chunk of my line of credit to keep the bank happy, and I didn't get taxed a dime.

Plus you get shit load of write off as a student. This is one way to cash in RRSP tax free.

[95EG6P]

Originally posted by Xtrema


Plus you get shit load of write off as a student. This is one way to cash in RRSP tax free.

What would consider being a student? Are all institutions part of this? even the online self directed learning?
Do you have to be a full time student or can you just take one course?