Cost Benefit Analysis of withdrawing from Pension (x-post from r/personalfinance)

[ritab]

Ontario, Canada. 30M.

I'm in a terrible place financially right now. I've been on and off work (at the same job) for the past 3 years, due to musical issues. I most recently went off in January of this year, and my claim for disability benefits through my employers insurance was denied. I'm suing them for those lost benefits, but that's not super relevant right now. At the end of June, I was evicted, and the same week was informed by my work that I was terminated. They claim with cause so I won't be getting termination or severance from them. I have applied for EI, but doubt I'll be eligible because my employer claimed termination with cause. My only income right now is OW (social assistance.) I have an appointment with my specialist at the end of the month to discuss applying for CPP-D and ODSP, but even if approved, those processes can take 6 months or more.

I got my final pension statement today and I have until October to direct those funds (about $15,000) to a RRSP or LIRA account.

I know that there's serious tax implications in touching those funds, and that I lose all the future investment value of those, but given the present need for money, should I consider withdrawing it? From what I'm reading Ontario law allows people to apply to withdraw locked in funds due to financial hardship, and everything I've read so far makes me think I would be eligible.

 

[julese]

@ritab If you direct the funds into an RRSP and then withdraw it, the penalty is income tax as the amount you withdraw from the RRSP is considered income. If your income is zero before you withdraw, most likely the tax might be low as well since approximately the first $10-11k of your income is not taxed. Additionally you might be eligible for other credits which might reduce your income which means lower taxes.

 

[ritab]

@julese So if I direct it to a RRSP, at my usual bank for example, once the move is completed, I can withdraw from it without any special requirements to do so, other than taxes being withheld?

 

[unseensaviour]

@ritab Taxes must be withheld on withdrawals.
10%

 

[julese]

@ritab Yeah you are able to withdraw from RRSP anytime, it's your money. It's just that you have tax owing from it, so you only own a certain percent of it.

 

[raghavendrbr]

@ritab Before you transfer it, there are very specific reasons you can withdraw the funds from a pension governed by the jurisdiction of the pension. Find out if it’s fed/ prov regulated and the then google the guidelines around withdrawing before you transfer anything. Knowledge is power.