Withdraw from RRSP and re-contribute in same year?

[sabad66]

Had a quick question that I'm sure someone on here knows the answer to...

Is it possible to withdraw from your RRSP and contribute the same amount (or more) within the same year without penalty? For example, here's my situation:

- plenty of unused RRSP room (like 25k+)
- i have $3500 and change in a RRSP (just a savings account, so barely collecting any interest)
- i want to withdraw all 3500 and use it to pay off the last bit of my student loan
- i would contribute $600 or more per month for the next 8 months into a different RRSP account (my questrade investor's account). Let's say in total it would be $5000 in contributions before Feb 28 2015
- 5000 - 3500 = $1500 net contribution
- i am thinking i would get some sort withdrawal tax receipt for -3500 from BMO, but then also a contribution receipt for $5000 from questrade

Am I allowed to do this without any "consequences"? Is there something I am missing?

Thanks in advance

[BrknFngrs]

This is a good plain english explanation of why this isn't a great idea. Mainly due to the tax on withdrawal and the permanent loss of contribution room (ie: it doesn't function like a TFSA; you don't get the contribution room "back" because you withdrew funds):

http://www.sunlife.ca/Canada/ataglance/Library/RRSP+-+Retirement+Savings/Early+withdrawals?vgnLocale=en_CA

I'd just pay down your loan naturally personally; student loan interest (if it's an actual student loan) is tax deductible as well.

[yellowsnow]

you'll be immediately charged withholding tax from withdrawing your rrsps with BMO... about 40% plus any fees they charge. you'll then get a tax credit on the new amounts you contribute.

you should probably just put the $600/month into your student loans, then once you finish paying them off, contribute into your rrsp account. you could also do a rsp transfer from your bmo to questrade account without any tax consequences.

[tenth]

They'll with-hold 10% in income tax on your withdrawal, so the cash you'd get would only be $3,150. If you contributed ~$2,500 or more in RRSPs the rest of the year (to March 1, 2015) it should make that transaction cash netrual (not owe money next April, assuming 32% marginal tax rate).

You'll never gain back the $3,500 in RRSP room that you're withdrawing, so the big downside would be losing the ability to grow the $3,500 without paying tax until retirement/withdrawal.

[sabad66]

Dammit, totally didn't realize you don't get your contribution room back when you withdraw. I wasn't too concerned about 10% tax withholding since I would've "got it back" when i filed next year, but losing the contribution room forever is a dealbreaker. Oh well.

yellowsnow - good call on the transfer idea... i'll look into that. Hopefully they don't charge too much of a fee since i'm moving the funds to another institution.

Thanks all

[tenth]

Originally posted by yellowsnow
you'll be immediately charged withholding tax from withdrawing your rrsps with BMO... about 40% plus any fees they charge. you'll then get a tax credit on the new amounts you contribute.
Not that I believe it's a good idea, but it's 10% in with-holding tax on RRSP withdrawals up to $5k.
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/wthdrwls/rts-eng.html

[FiveFreshFish]

Get a $5000 personal line of credit if the rate you negotiate can be lower than that of the student loan. Pay out the student loan and then chip away at the line of credit at $600 per month.

[sabad66]

Student loan isn't too bad at only 5.5% (also interest is tax deductible). I already have a PLOC at prime + 3 which is already pretty good for unsecured (from what i hear) so i don't think I'll be able to get any lower than that.

[rinny]

Are you finished school? If you're still full time you can withdrawal under lifelong learning program.