Asked
Hello! Long time lurker here.
Pension buy back question
I want to buy back my pension time for my maternity leave, and one option is to use my RRSPs.
I have contribution room, but what are the tax implications of using your RRSP (directly) to buy back pension time? Does it get counted as a taxable withdrawal? Or penalized? It doesn't seem like this could be a tax deduction, but curious if there are negative implications to this route.
Thanks so much!
Clint’s answer
Yes, doing it this way should result in net zero taxes as long as it is done appropriately through the correct channels by the financial institutions holding the funds and receiving the funds.
The key is that they stay registered.
Some consideration might be given to the type of pension it might be, how long one has been contributing and how long one plans to continue to contribute. And maybe a bit of thought as to what the RRSP purpose might actually be for to ensure it isn't redundant saving that would be taxed heavier if it were to be withdrawn as a lump sum for any reason before or after retirement.
I might suggest looking into the option for TFSA and what the benefits of having it over an RRSP would be if I had a pension plan.
October 25, 2024
From Ask Clint: real questions from a Canadian public finance forum, answered by Clint Cole. Names are changed. This is general information, not advice for your situation, and rules and dollar figures may have changed since Clint answered. Terms