A comprehensive estate plan can include multiple vehicles for retirement savings. For example, a trust, a tax free savings account and a registered retirement savings plan can all be coordinated in the same estate plan in order to maximize your finances during retirement.
It may be tempting, however, to draw from your retirement savings before the end of your career, especially if you need to cover an unexpected cost like home repair or the purchase of a new vehicle. In fact, a poll by the Bank of Nova Scotia found that about 40 per cent of Canadians withdraw money from their RRSPs well before retirement. If you find yourself considering this tactic, then first speak with a certified financial planner or your estate planning lawyer to ensure that you are making the right decision.
Dipping into your RRSP will have immediate tax consequences, and drawing down from your plan could result in your having to continue working longer than you anticipated. Rather than pulling from your RRSP, using funds from your tax free savings account may make more sense.
If you withdraw from an RRSP early, then you don’t get back your contribution room. With a TFSA, however, you can regain your contribution room in subsequent years.
The truth is that early withdrawal from a retirement plan is a bad idea in most situations and should be avoided. If you or a loved one is considering this course of action, then you may benefit from speaking with an estate planning lawyer who can assess your situation and explain your full range of options.