Should I dip into my RRSP while on maternity leave?

I’ve read that one of the best times to withdraw from an RRSP is when you’re earning less money. I’m currently on maternity leave and would like to withdraw $5,000 from my RRSP to pay some bills. What do you think?

—Krystal Lee Young, Toronto

The very, very best time to withdraw from an RRSP is when you’re retired. Sure, you can withdraw funds during periods of low income but I’m not a fan of this approach. The first reason is that the government will withhold tax, meaning you won’t receive the full $5,000 you take out. Second, you’re taking the money from your future self. Not only will you need to scramble in the future to replace the money you withdrew, but you will also miss out on the power of compound interest in those few years. Third, you won’t ever get that RRSP contribution room back. And fi nally, even if the tax argument is compelling, you’re setting a precedent that your RRSP can be used for something other than retirement, which I think can be dangerous. All that said, if this really is your only option then take the money but leave the guilt. We parents have enough of that to deal with already.

About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.