You’ve spent years contributing to your Registered Retirement Savings Plan (RRSP).
You’ve probably watched it grow and thought, Now what? When should you start withdrawing? How do RRSP withdrawals affect your taxes, government benefits, and overall retirement income?
The truth is—there’s no one-size-fits-all answer.
The timing of your RRSP withdrawals can significantly impact your financial future. Whether you’re planning ahead or nearing retirement, understanding your options will help you maximize your savings and minimize unnecessary tax burdens.
Here’s what you need to know.
What Happens When You Withdraw from Your RRSP?
An RRSP is a tax-deferred retirement savings account. That means you don’t pay taxes when you contribute, but you do when you withdraw.
Every dollar you take out is added to your taxable income for the year, which can push you into a higher tax bracket and increase how much you owe the government.
So, when should you start withdrawing? Let’s break it down.
Don’t Withdraw Too Early (Unless You Have To)
It can be tempting to dip into your RRSP before retirement, but early withdrawals come with consequences:
🔥Full Taxation – RRSP withdrawals are fully taxable, meaning they count as income in the year you take them out. If you’re still working, this could push you into a higher tax bracket, increasing your tax bill.
🔥Withholding Taxes – When you withdraw from an RRSP before retirement, your bank withholds a portion for taxes right away.
Here’s how it breaks down in Canada:
-
- Up to $5,000 withdrawn → 10% withheld (5% in Quebec)
- $5,001 to $15,000 withdrawn → 20% withheld (10% in Quebec)
- Over $15,000 withdrawn → 30% withheld (15% in Quebec)
And that’s just the beginning—you might still owe more when you file your tax return.
🔥Lost Growth Potential – One of the biggest advantages of an RRSP is tax-sheltered growth. The longer your money stays inside, the more it can compound and grow. Withdrawing early cuts that short.
🔥 Better Alternatives – If you need funds, consider:
✔️ TFSA withdrawals (which are tax-free)
✔️ The Home Buyers’ Plan (HBP) – Allows first-time homebuyers to withdraw up to $35,000 tax-free from their RRSP, as long as it’s repaid over time.
✔️ The Lifelong Learning Plan (LLP) – Allows you to withdraw up to $20,000 tax-free for education costs, with repayment required.
Bottom line? Avoid withdrawing from your RRSP unless absolutely necessary.
But Don’t Wait Too Long, Either
While withdrawing too early can cost you, waiting too long can too.
Here’s why:
🔥Mandatory Conversion at 71 – By December 31 of the year you turn 71, you must convert your RRSP into either:
✔️ A Registered Retirement Income Fund (RRIF)
✔️ An annuity
🔥Minimum RRIF Withdrawals – If you choose an RRIF, the government requires minimum annual withdrawals starting at age 72. These are taxable and increase over time.
🔥OAS Claw backs – If your taxable income (including RRSP withdrawals) exceeds a certain threshold ($90,997 in 2024), the government will start clawing back your Old Age Security (OAS) benefits.
🔥Higher Tax Brackets – If you delay too long, your forced withdrawals in your 70s and 80s could be much larger than expected—pushing you into a higher tax bracket and increasing your overall tax bill.
Depending on your financial situation, you may benefit from strategic withdrawals before you reach 71.
The Sweet Spot: Strategic Withdrawals in Low-Income Years
One of the best retirement planning strategies is to withdraw from your RRSP during low-income years—before you start collecting full Canada Pension Plan (CPP), OAS, or workplace pensions.
✅ Why? By withdrawing small amounts when your income is lower, you:
✔️ Keep your tax rate low
✔️ Avoid OAS claw backs
✔️ Spread your taxable income over more years
✔️ Reduce the size of forced withdrawals at 71
📌 Example: If you retire at 60 with no other income, you might withdraw $15,000 per year from your RRSP and pay little tax. Compare that to waiting until 72, when forced withdrawals might push you into a much higher bracket.
A wealth advisor can help determine the right balance based on your personal situation.
Factor in Government Benefits
Your RRSP withdrawal strategy should also consider how it affects your government benefits:
✔️ Old Age Security (OAS) – Begins at 65 but is income-tested. Too much taxable income from RRSP withdrawals could reduce or eliminate your OAS benefits.
✔️ Guaranteed Income Supplement (GIS) – For low-income retirees, GIS is also income-tested, meaning large RRSP withdrawals could disqualify you from receiving it.
✔️ CPP (Canada Pension Plan) – CPP isn’t income-tested, but taking RRSP withdrawals before CPP kicks in can help keep your tax bracket lower later.
What’s the Right RRSP Withdrawal Strategy for You?
The best approach will depend on your income, tax situation, government benefits, and retirement goals.
Here’s what to consider:
🔥Start small withdrawals in early retirement before CPP/OAS to spread out taxable income.
🔥Delay RRIF conversion until necessary, but don’t wait too long.
🔥Optimize withdrawals to minimize taxes and government claw backs.
Ready to Make the Most of Your RRSP?
There’s no one-size-fits-all strategy, but planning ahead with an advisor can help you maximize your retirement savings, reduce taxes, and protect government benefits.
We’ll be discussing RRSP strategies at an upcoming #BrewCrew event. Stay tuned for details!
In the meantime, we’re here to help you build a personalized RRSP withdrawal plan that makes sense for your financial future.
This information has been prepared by Andrew Nguyen CFA, CFP® who is a Portfolio Manager and Certified Financial Planner for iA Private Wealth Inc. Opinions expressed in this article are those of Andrew Nguyen and do not necessarily reflect those of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
