Canadian Tax and
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How to get your money out of RRSPs tax free (sort of)

Unfortunately, there is no way you can avoid tax when withdrawing money from RRSPs or RRIFs.  But, with some tax planning, you can reduce the taxes payable.

You can do this by borrowing money to invest in stocks outside of your RRSP, while you make withdrawals from your RRSP.  This is the same strategy used in borrowing to invest.  It converts a portion of your RRSP withdrawal income, which is fully taxed, into Canadian dividends and capital gains, which are taxed at lower rates and/or allow you to defer tax. This is done by offsetting a portion of the RRSP withdrawal with the interest expense on the funds borrowed to invest.

Of course, you would have to borrow a significant amount in order to achieve the tax savings.  We do not recommend this strategy unless you have experience in the stock market!  At times the stock market is very volatile, and if you have no experience you may panic and make bad decisions.  Our advice is to slowly invest in stocks, work your way up to borrowing to invest, and then use this strategy when you retire, or start shortly before you retire.

In the past, we provided an Excel worksheet, the Shelter RRSPs Calculator, which did some analysis on this.  Although it was being downloaded frequently by visitors to our site, we had very little feedback, so we didn't really know how it was being used.  This worksheet has been discontinued.

You can check out our Borrow to Invest page.


Revised: September 21, 2013


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