Hi everyone and welcome back to The Independent.Dollar..Today we’re taking another look at RRSPs.but this time, we’re going to show you a.few reasons to consider cashing them out early..While RRSPs are mainly for retirement savings.and can offer significant tax savings, sometimes.RRSPs are not always the right fit..In fact, sometimes it even makes sense to.cash them out well before you even hit retirement..So today were going to look at 3 Reasons why.you should consider withdrawing your RRSPs.right now..First up is MATERNITY LEAVE.If you’ve followed our previous RRSP videos,.you would remember us mentioning that the.income tax advantages of RRSPs are the main.reasons to utilize these types of accounts..Ideally, you’re depositing money into your.RRSP when your income is high, then withdrawing.from the account in retirement when your income.is much lower and you’re now in a lower.tax bracket..As a new parent on maternity leave, you’re.entitled to a few financial support programs.through the government, one of which is Employment.Insurance..Typically, the maximum you can receive through.Maternity EI is 55% of what you were making.while you were working, up to a maximum of.$573/week..While you’re certainly not retired while.you’re on maternity leave, your income has.been substantially reduced and you are now.in a lower income tax bracket..So for some of us, it might make sense to.withdraw from our RRSPs now vs waiting until retirement..You could then either deposit whatever you.took out, into your TFSA or if your TFSA is.already maxed out, you consider looking at.dividend paying stocks as another tax efficient option..We have a great tutorial that shows you the.easiest way to find and invest in dividend.stocks, even if you’re new to investing..We’ll include a link to that video in the.description below..Keep in mind that some benefits such as the.Canada Child Benefit are income tested, meaning.you may have reduced parental benefits if.you withdraw from your RRSP..So make sure you meet with your Accountant.prior to making any decision, to determine.what amount you can safely withdraw from your.account..Another reason to cash out your RRSPs is because.either your hours have been reduced at work.or you’re not currently working..While we would ideally like to see our RRSP.savings stay invested until retirement, unexpected.situations can sometime change our plans..If you were laid off or you quit your job,.you’re in a situation again where your income.has been reduced to either employment insurance.or your income has been eliminated all together..While certain sources of income do impact.your Employment Insurance benefits, RRSP withdrawals.are not considered one of them..Similar to being on Maternity leave, your.again in a situation where your income has.been substantially reduced or eliminated so.there could be substantial tax advantages.to taking the money out now vs later..If you are on EI and you’re expecting to.receive money through previous jobs, insurance.policies or corporate retirement plans, you.can check out a link in the description below.which will let you know which types of income.could impact how much EI you will receive..The last reason to consider withdrawing your.RRSPs now vs later, is if.you plan on retiring early..If you’re retiring before age 60, especially.if you are going to be receiving a pension,.now may be the best time to consider cashing.out your RRSPs early..Once you turn 60, you’re now eligible to.receive Canada Pension Plan (CPP) and at 65.you will look forward to getting Old Age Security.(OAS)..However, all 3 of these are taxable income,.with OAS being income tested..Meaning, the more you make the less OAS you.will receive..Here is a quick example showing you the difference.when you withdraw from your RRSP later in.retirement vs someone withdrawing from their.RRSP as early as age 55..Bob is 40 years old and plans to retire when.he turns 55..He contributes to his RRSP every year and.maxes out his TFSA..By the time Bob retires, his RRSP will be.worth about $500K and his TFSA will be worth.over $260k..Bob decides he is going to cash out whatever.money he needs from his TFSA every year once.he retires, so he can pay the least amount.in taxes possible..On this plan, Bob can live off of his TFSA.for a little over 6 years..After which, any money he needs will then.be taken from his RRSP..Once Bob turns 71, his RRSP will need to be.converted into a Registered Retirement Income.Fund, also known as a RRIF..If you’re not familiar with RRIFs, we have.a great video all about them but essentially.once your turn 71 your RRSP must be converted.into a RRIF..Once that happens, you’re now required to.withdraw money every single year, even if.you don’t need it..The amount you must withdraw is a percentage.of the balance of your account..The bigger your RRIF, the more money you will.have to take out every year, all of which.is taxable income..In Bob’s case, at age 71 he will need $50k.from his RRIF to cover his.expenses for the year..However, based on the minimum amount he must.withdraw, Bob will be forced to take out a.little over $80k..Which means, he will have to pay tax on $30k.of extra income that he doesn’t need right now..Because Bob’s account is worth so much,.every year he will be forced to take out more.than he needs and continue to pay tax on money.he won’t be spending..Once Bob passes away at 85, his TFSA will.be empty but his RRSP, which is now a RRIF,.will be still be worth well over $1.2 million..While that sounds like a lot, what is more.surprising will be his tax bill!.When you die, your investment accounts are.sold and the entire balance of your RRSP or.RRIF is added to your income that year..This means in Bob’s case, his income in.the year he dies will be over $1.2 million.and his income tax Bill will be over $640k..Bob ran the numbers ahead of time and decided.in retirement he would rather withdraw $50k.every year from his RRSP starting at age 55.and only touch his TFSA when he needs it..Compared to his previous plan, Bob’s TFSA.when he dies will be worth over $920k and.his RRSP will be worth a little over $700k..He didn’t get the first few years tax free,.but his taxes every year in retirement stayed.relatively steady and he wasn’t forced to.make large taxable withdrawals from.his RRIF that he didn’t need..Once he passed away, his tax bill was only.$336k since any money left in his TFSA was tax free..Because Bob drew down his RRSP over a longer.period of time, the account was smaller when.he died and so was his tax bill..Bob’s will have $253k more in additional.money that he can then leave to his beneficiaries.from of all the taxes he saved by withdrawing.from his RRSP early..While withdrawing from your RRSP early may.not work for everyone, running the numbers.ahead of time and building a plan can help.you put together the most efficient withdrawal.strategy for your investments..Hopefully you found this video helpful, thanks.so much for watching and we will see you back.here next week..