CPP, OAS, and GIS: Maximize your public retirement benefits with our CPP, OAS, and GIS Guide.
RRSP withdrawals are taxed as income, with 10-30% withholding at source. Here’s everything you need to know about taking money out of your RRSP.
Withholding Tax on RRSP Withdrawals
When you withdraw from your RRSP, the financial institution withholds tax at source before sending you the rest. The withholding rate increases with the size of the withdrawal, which is why some people split larger withdrawals across multiple smaller transactions — though this doesn’t change the total tax owed at filing time.
| Withdrawal Amount | Withholding Tax (Outside Quebec) |
|---|---|
| Up to $5,000 | 10% |
| $5,001-$15,000 | 20% |
| Over $15,000 | 30% |
Quebec residents: Add 14-15% provincial withholding tax.
Important: This is just the withholding. Your actual tax owed depends on your total income that year.
How RRSP Withdrawals Are Taxed
The withholding tax is just a deposit against your actual tax bill. RRSP withdrawals are added to your income for the year and taxed at your marginal rate. If you withdraw while earning a full salary, the combined income could push you into a much higher bracket — meaning you’ll owe additional tax at filing time beyond what was withheld.
| Your Total Income (Ontario) | Marginal Tax Rate on Withdrawal |
|---|---|
| Under $50,000 | 20.05% |
| $50,000-$100,000 | 29.65% |
| $100,000-$150,000 | 37.16% |
| $150,000-$220,000 | 43.41% |
| Over $220,000 | 53.53% |
If your withholding tax was lower than your marginal rate, you’ll owe the difference at tax time.
Penalty-Free RRSP Withdrawals
There are only two programs that let you take money out of your RRSP without triggering immediate tax: the Home Buyers’ Plan and the Lifelong Learning Plan. Both are essentially interest-free loans from your own RRSP — you must repay the withdrawn amount on schedule or it gets added to your income.
Home Buyers’ Plan (HBP)
| Rule | Details |
|---|---|
| Max withdrawal | $60,000 |
| Repayment period | 15 years |
| Start repayment | 2nd year after withdrawal |
| Requirement | First-time buyer |
Example: Withdraw $60,000, repay $4,000/year for 15 years.
Lifelong Learning Plan (LLP)
| Rule | Details |
|---|---|
| Max withdrawal | $10,000/year ($20,000 total) |
| Repayment period | 10 years |
| Start repayment | 5th year after first withdrawal |
| Requirement | Enrolled in qualifying program |
Both programs allow tax-free withdrawals if you repay on schedule.
Lost Contribution Room
This is the single most important reason to think twice before making early RRSP withdrawals. Unlike a TFSA where withdrawn amounts return as contribution room the following year, RRSP room is gone permanently once you use it. A $10,000 withdrawal doesn’t just cost you the tax — it costs you decades of tax-sheltered compound growth on that room.
Unlike TFSAs, RRSP withdrawals permanently reduce your contribution room:
| Action | Impact on Room |
|---|---|
| Contribute $10,000 | -$10,000 room |
| Withdraw $10,000 | Room does NOT come back |
| Net effect | Permanently lost room |
This is a major disadvantage of early RRSP withdrawals.
Strategic Withdrawal Timing
The key to minimizing tax on RRSP withdrawals is timing them for years when your other income is low. The gap between a 20% marginal rate and a 43% rate means the same $20,000 withdrawal can cost anywhere from $4,000 to $8,700 in tax depending on when you take it.
Best times to withdraw:
| Scenario | Why It’s Good |
|---|---|
| Low-income year | Lower tax bracket |
| Sabbatical/leave | Minimal other income |
| Early retirement (before CPP/OAS) | Fill low brackets |
| Moving abroad | Potentially lower rates |
Worst times to withdraw:
| Scenario | Why It’s Bad |
|---|---|
| High-earning years | Maximum tax hit |
| On top of full salary | Pushes you to higher brackets |
| After age 71 | Forced RRIF minimums anyway |
RRIF Conversion at 71
You cannot hold an RRSP past the end of the year you turn 71 — it must be converted to a Registered Retirement Income Fund (RRIF), an annuity, or cashed out entirely. Most people choose the RRIF, which requires increasing minimum withdrawals each year. Planning ahead by drawing down your RRSP in your 60s can prevent large forced withdrawals later that trigger OAS clawbacks.
| Rule | Details |
|---|---|
| Conversion deadline | December 31 of year you turn 71 |
| Minimum withdrawals | Required starting at age 72 |
| RRIF minimum at 72 | 5.28% of balance |
| RRIF minimum at 80 | 6.82% of balance |
| RRIF minimum at 90 | 13.62% of balance |
RRIF minimums increase with age, ensuring you draw down the account.
Withdrawal Strategies in Retirement
The order and timing of your retirement withdrawals can save you tens of thousands in taxes over the course of retirement. The most common mistake is leaving the RRSP untouched until forced RRIF withdrawals at 72, which often results in larger taxable amounts stacking on top of CPP and OAS income.
| Strategy | How It Works |
|---|---|
| Bracket topping | Withdraw to fill low tax brackets |
| Bridge income | Draw RRSP before CPP/OAS starts |
| Income splitting | Spousal RRSP for even drawdown |
| Hold until 71 | Maximum tax-deferred growth |
Tax Comparison: RRSP Withdrawal Scenarios
| Scenario | Total Income | Tax on $20K Withdrawal |
|---|---|---|
| Low income year ($30K) | $50K | ~$4,000 (20%) |
| Full-time work ($80K) | $100K | ~$7,400 (37%) |
| High earner ($150K) | $170K | ~$8,700 (43%) |
The same withdrawal costs 2x more in taxes if you’re working full-time.
Non-Resident Withdrawals
If you leave Canada with money still in your RRSP, withdrawals are subject to a flat non-resident withholding tax instead of the normal graduated rates. Tax treaties between Canada and your new country may reduce the withholding rate, but you should consult a cross-border tax advisor before making any moves.
| Situation | Withholding Rate |
|---|---|
| Lump sum (non-resident) | 25% (flat) |
| RRIF periodic payments | 15-25% (depending on treaty) |
Tax treaty with your new country may reduce withholding.
When Early Withdrawal Makes Sense
Despite the permanent room loss and tax hit, there are situations where tapping your RRSP early is the pragmatic choice. The key question is always whether the cost of withdrawing now is less than the alternative — such as carrying high-interest debt or missing a low-income window.
| Situation | Consider Withdrawing |
|---|---|
| Emergency (no other options) | Yes, but use TFSA first |
| Very low income year | Yes, lower tax rate |
| Large medical expenses | Yes, offset by medical credit |
| Permanently leaving Canada | Yes, managed exit taxation |
| Need cash while working | Usually no — high tax cost |
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