Withdrawing money from Registered RSP account

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Feb 13th, 2020 11:41 pm

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Feb 4th, 2020 1:34 pm

urir10 [OP]: Deal Addict; Dec 30, 2007; 4326 posts; 424 upvotes; GTA

Feb 4th, 2020 1:34 pm

Withdrawing money from Registered RSP account

I had a long discussion with my friend who currently owns a condo but are looking to buy a house and rent the condo. So now they were thinking of using their RSP money which they have to cover some of that downpayment. They are in real need of a house as they have 4 children who have now grown and its very difficult for them in the 2 bed room condo.
Now i suggested that its a good idea to use that money for buying the house, yes they will pay a hefty tax on it, but on the other hand they will be able to finally afford a house without taking a loan from somewhere else at a ridiculous rate, although he keeps suggesting that he want to just go an borrow the money from somewhere.
They both have a high income of roughly 200K or more and are able cover all expenses, they have some debt but nothing crazy ( they did open a business not long ago and its now profitable ) the only reason they are in a rush is because he says its becoming unbearable to stay that many people in a small place like that.

What do u guys think, do you think its a good idea for them to do it?

17 replies

Feb 4th, 2020 2:35 pm

Fjr2005: Banned; Mar 11, 2016; 2081 posts; 891 upvotes

Feb 4th, 2020 2:35 pm

they are in highest tax bracket and you advised them to take $$ out of their RSP for down payment??? you are both on crack and their worst enemy, not a friend....

they would be better off borrowing the money at 20% than w/d and lose over 50% instantly to income tax...and the loan would at least be tax deductible with the right paper trail...

+2

Feb 4th, 2020 2:47 pm

urir10 [OP]: Deal Addict; Dec 30, 2007; 4326 posts; 424 upvotes; GTA

Feb 4th, 2020 2:47 pm

another issue for him is that if he takes a loan he will need to be paying a hefty monthly payment in addition to his mortgage, child care etc which will put him in the red on monthly expenses which they dont want.

+1

Feb 4th, 2020 6:04 pm

akaManny: Deal Addict; Mar 8, 2013; 2812 posts; 1487 upvotes

Feb 4th, 2020 6:04 pm

Excuse me, but this is nothing new. Family is outgrowing the current home. Do not mix this with investments, RSP or otherwise. Sell the condo, buy a home that is appropriate, and enjoy your family life. There is lots of time later to buy a condo for investment purposes, if that makes sense.

+2

Feb 12th, 2020 8:54 pm

PolarisCPA: Member; Feb 9, 2020; 201 posts; 127 upvotes

Feb 12th, 2020 8:54 pm

Yeahhhh... I don't think that would be advisable as you pay ~52% on RRSP withdraws at that income level. You also lose the RRSP room forever.
Not sure how high of an interest he will be getting, assuming 5% lets say. It would be many many years before he pays 50% in interest.
Investment choices aside, it wouldnt make sense tax wise.

Also from a cash flow perspective, I feel like paying 50% of the withdraw upfront is a bigger burden than monthly mortgage payments?

Feb 13th, 2020 1:16 am

Thalo: Deal Fanatic; Jul 1, 2007; 8547 posts; 1724 upvotes

Feb 13th, 2020 1:16 am

Withdrawing from their RRSP for this would be the most idiotic thing they can do in their situation.

Why not sell the condo? Is it unsellable? (are you in Alberta?)

Money Smarts Blog wrote: ↑I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

Feb 13th, 2020 10:57 am

teoconca: Deal Guru; Oct 16, 2008; 10144 posts; 4421 upvotes; Vaughan

Feb 13th, 2020 10:57 am

Excuse me, but this is nothing new. Family is outgrowing the current home. Do not mix this with investments, RSP or otherwise. Sell the condo, buy a home that is appropriate, and enjoy your family life. There is lots of time later to buy a condo for investment purposes, if that makes sense.

This. Why mix investment and family styles?

...

Feb 13th, 2020 10:59 am

urir10 [OP]: Deal Addict; Dec 30, 2007; 4326 posts; 424 upvotes; GTA

Feb 13th, 2020 10:59 am

he dropped the idea, their condo is worth almost as much as what they paid for, bought near the top in 2017, thats why they dont want to sell now.

Feb 13th, 2020 11:25 am

teoconca: Deal Guru; Oct 16, 2008; 10144 posts; 4421 upvotes; Vaughan

Feb 13th, 2020 11:25 am

urir10 wrote: ↑ he dropped the idea, their condo is worth almost as much as what they paid for, bought near the top in 2017, thats why they dont want to sell now.

Your friend still needs a house to accomodate his growing family. When he makes money on condo, he will pay much more on the house. Where does your friend live? He should not bet house prices will be lower in future.

...

Feb 13th, 2020 11:35 am

urir10 [OP]: Deal Addict; Dec 30, 2007; 4326 posts; 424 upvotes; GTA

Feb 13th, 2020 11:35 am

Markham area,
Thats one of the reasons he wanted to get a house now to get it before it goes up again and again at which point it will just become out of reach

Feb 13th, 2020 11:46 am

teoconca: Deal Guru; Oct 16, 2008; 10144 posts; 4421 upvotes; Vaughan

Feb 13th, 2020 11:46 am

urir10 wrote: ↑ Markham area,
Thats one of the reasons he wanted to get a house now to get it before it goes up again and again at which point it will just become out of reach

Exactly, prices will go up for sure. My brother in-law was in the same situation, husband/wife/3 small children in 1+den condo. I kept telling him to get the house, he kept saying to wait for house market to lower (8 years ago). He hung on the condo for 3 more years, house market went up further. He eventually bought the house 5 years back. If he waits now, he will not afford it. Not to brag, just an example for your friend, my house went up almost 5 folds in 18 years.

...

Feb 13th, 2020 11:53 am

urir10 [OP]: Deal Addict; Dec 30, 2007; 4326 posts; 424 upvotes; GTA

Feb 13th, 2020 11:53 am

The issue here is, they have enough money saved up to buy a house under 1mil (which there are none to be found in his area) , but not over as it requires 20%. Selling their condo now will make them maybe 40-50K at most, if their lucky. This is why he was thinking of using his RSPs,
yes he will pay tax but that way he will have a different investment which is his house and the condo

Feb 13th, 2020 12:01 pm

teoconca: Deal Guru; Oct 16, 2008; 10144 posts; 4421 upvotes; Vaughan

Feb 13th, 2020 12:01 pm

urir10 wrote: ↑ The issue here is, they have enough money saved up to buy a house under 1mil (which there are none to be found in his area) , but not over as it requires 20%. Selling their condo now will make them maybe 40-50K at most, if their lucky. This is why he was thinking of using his RSPs,
yes he will pay tax but that way he will have a different investment which is his house and the condo

I hope your friend is not holding too many eggs. Get rid of the condo has 3 main advantages:
- no mortgage on condo, he can concentrate paying mortgage on the house
- more down $$$ for the house
- house price is cheaper now vs later

...

Feb 13th, 2020 12:12 pm

Guest37273939: Deal Addict; Jul 27, 2017; 2180 posts; 949 upvotes

Feb 13th, 2020 12:12 pm

teoconca wrote: ↑ I hope your friend is not holding too many eggs. Get rid of the condo has 3 main advantages:
- no mortgage on condo, he can concentrate paying mortgage on the house
- more down $$$ for the house
- house price is cheaper now vs later

^^^ this above

urir10 wrote: ↑ I had a long discussion with my friend who currently owns a condo but are looking to buy a house and rent the condo. So now they were thinking of using their RSP money which they have to cover some of that downpayment.

They both have a high income of roughly 200K or more and are able cover all expenses, they have some debt but nothing crazy ( they did open a business not long ago and its now profitable ) the only reason they are in a rush is because he says its becoming unbearable to stay that many people in a small place like that.

definitely not

what if they were to sell the condo, buy a house, that way at least the 'no more' mthly condo fee should give them a few more bucks towards any increased mortgage payments.

in fact they should try to find a house that is not a condo to see if they can get same or less mtge payments as what they were paying for the condo.

Feb 13th, 2020 1:13 pm

scoper: Deal Fanatic; Aug 5, 2006; 8864 posts; 5858 upvotes; Global Village

Feb 13th, 2020 1:13 pm

teoconca wrote: ↑ Exactly, prices will go up for sure.

Really? We live in the days when we're a Covid-19 outbreak away from a possible recession, nothing is for sure when it comes to the Markham real estate market in the following years.

All day I dream about sports

My Banks: Tangerine, Meridian, EQ Bank, Simplii

+1

Feb 13th, 2020 1:20 pm

teoconca: Deal Guru; Oct 16, 2008; 10144 posts; 4421 upvotes; Vaughan

Feb 13th, 2020 1:20 pm

scoper wrote: ↑ Really? We live in the days when we're a Covid-19 outbreak away from a possible recession, nothing is for sure when it comes to the Markham real estate market in the following years.

We went thru many disasters (SARS, 9-11, etc), do they slow down housing market? We can't let it affect our lives. We will go thru Covid-19.

...

Feb 13th, 2020 1:45 pm

JUnit: Deal Addict; Dec 28, 2007; 1144 posts; 736 upvotes

Feb 13th, 2020 1:45 pm

Would renting out this condo even be cash flow positive after factoring in condo fees, property tax, mortgage interest, etc.?

Feb 13th, 2020 11:41 pm

Thalo: Deal Fanatic; Jul 1, 2007; 8547 posts; 1724 upvotes

Feb 13th, 2020 11:41 pm

urir10 wrote: ↑ he dropped the idea, their condo is worth almost as much as what they paid for, bought near the top in 2017, thats why they dont want to sell now.

GTA real estate prices are still near the peak. Why not sell now, when the price will only be much lower later on, in the dark times.

Money Smarts Blog wrote: ↑I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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