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Fact Checked
Update date 11.04.2025
In Canada, you can't really borrow from your retirement account like you can with a 401(k) loan in the U.S. Unfortunately, RRSPs don’t let you take out loans from your own contributions. But there are a couple of ways Canadians can tap into their RRSPs. One option is through government programs like the Home Buyers’ Plan and Lifelong Learning Plan, which allow you to withdraw a limited amount tax-free for specific reasons, as long as you pay it back within a certain time. Another route is to get an RRSP loan from a bank or credit union. This isn’t borrowing from your RRSP directly. It’s an external loan you take out to contribute to your RRSP and get a tax deduction. You’ll pay back the lender with interest, just like any regular loan. While it’s not the same as a 401(k) loan, this approach can help you boost your contributions and possibly increase your tax refund without dipping into your existing RRSP savings.
Requirements and Conditions
Requirements
To qualify for the HBP, you need to be a first-time homebuyer. That means you haven't owned a home and lived in it as your main place for the last four years before making the withdrawal.
The funds for the HBP must be withdrawn from an RRSP account that is in the name of the account holder, their spouse, or common-law partner.
The homebuyer needs to plan on making the home their main place to live within a year of buying or building it.
To join the LLP, you need to be a full-time student or enrolled in a specific educational program part-time. Just make sure the program runs for at least three months in a row.
The funds for the LLP must be withdrawn from the RRSP account of the individual or their spouse.
A valid government-issued ID is required, typically one piece of primary ID and one secondary, or two primary pieces.
You must be a Canadian citizen or permanent resident to meet legal eligibility standards.
A credit score around 660 is typically required to qualify with most lenders.
Proof of income is often required, especially for larger loan amounts or self-employed applicants. Lenders may ask for recent Notices of Assessment to verify income and tax compliance.
Conditions
You can take out a maximum of $35,000 from your RRSP with the HBP, no matter how much you have in your account. Keep in mind, annual limits that vary from year to year.
You can take out a maximum of $20,000 from your RRSP with the LLP, but keep in mind that there are annual limits set by the Canadian government.
You won't pay taxes immediately on the withdrawal for the HBP, but you must repay it to your RRSP over 15 years, starting the second year after withdrawal.
The homebuyer must have a written agreement to buy or build a qualifying home. This agreement should be signed by the homebuyer and a person selling the home who will not be living in the home after the purchase.
Funds withdrawn under the LLP are not immediately taxed, but they must be repaid to the RRSP over 10 years.
The school needs to give you a written confirmation of your enrollment or an offer to enroll, and you'll need to send that confirmation to the Canada Revenue Agency (CRA) when you request your LLP withdrawal.
Finanso Opinion
In Canada, there isn't really a direct equivalent to the 401(k) loan you see in the U.S., which just goes to show how different the retirement savings systems are up here. Canadians can tap into their registered retirement savings plans (RRSP) for certain things, like buying a home or going back to school, thanks to programs like the Home Buyers' Plan and Lifelong Learning Plan. But these aren’t really loans; they’re more like withdrawals that come with specific repayment rules. So, it’s important to understand the rules around RRSP withdrawals for different financial needs.
FAQ
How does a Registered Retirement Income Fund (RRIF) work?
A Registered Retirement Income Fund, or RRIF, is a type of account you set up with a financial institution to convert your retirement savings — typically from an RRSP — into a steady stream of income. Once the RRIF is established, usually by the end of the year you turn 71, it begins to make regular payments to you, which are considered taxable income. You must withdraw at least a minimum amount each year, but there’s no maximum limit. The goal of an RRIF is to provide ongoing retirement income while allowing the remaining funds to continue growing tax-deferred until withdrawn.
Are there penalties for withdrawing money early from an RRSP?
While RRSPs don’t impose formal penalties for early withdrawals, any amount you take out before retirement is subject to withholding tax, which varies depending on the amount withdrawn and your province of residence. This means you’ll pay taxes on the funds in the year you withdraw them, which could reduce the overall benefit of the account. It’s also important to note that if you have a locked-in RRSP — such as one transferred from a pension plan — early lump-sum withdrawals are generally not allowed, except under specific circumstances. These accounts are designed strictly for retirement income, so access is more restricted compared to regular RRSPs.
