Drawing Down Your RRSP Before You Have To

Some people start taking money out of their RRSP years before they're forced to, so the tax is spread over more years instead of landing all at once later. Others leave it alone until the RRIF rules make them withdraw. Which way makes sense depends on your income now, your income later, your spouse, and who you want the money to go to.

Every dollar out is taxable income

When you withdraw from your RRSP, the amount goes into your income for that year. Your financial institution also holds back tax at the time of the withdrawal. For residents of Canada outside Quebec, the withholding rates are:

The withholding is a prepayment, and it may not cover the tax you actually owe at your bracket. If it falls short, you pay the rest when you file. Nothing is withheld on money moved directly to a RRIF or used to buy an annuity.

The age 71 deadline

The year you turn 71 is the last year you can contribute to your own RRSP. Generally, the RRSP has to mature by the last day of that year, and you choose to withdraw it, transfer it to a RRIF, or use it to buy an annuity.

Once you have a RRIF, you have to be paid at least a minimum amount every year, starting the year after you set it up. The carrier works out the minimum from your age at the start of each year. You can ask for it to be based on your spouse's or common-law partner's age instead, but that choice is made on the original application and can't be changed later. You can take out more than the minimum, never less, and everything paid out is taxable when you receive it.

Pension credit and splitting at 65

RRIF payments count as eligible pension income once you're 65 or older at the end of the year. That matters in two ways:

• The pension income amount. For the 2025 tax year (filed in spring 2026), you can claim a federal pension income amount of up to $2,000, and BC's version goes up to $1,000. Ordinary RRSP withdrawals generally don't qualify.
• Pension splitting. You and your spouse or common-law partner can jointly elect on Form T1032 to move up to 50% of your eligible pension income onto their return. See how pension income splitting works.

OAS and other income-tested amounts

If you get Old Age Security and your net income before adjustments (line 23400) goes over the threshold, you repay 15% of the amount above it. The threshold is $93,454 for 2025 income and $95,323 for 2026 income.

Some credits, like the age amount, are worked out from your own net income, so a year with a large withdrawal can affect them. The Guaranteed Income Supplement is only paid if your annual income is under a set threshold. A large withdrawal in one year can push you past some of these lines, while smaller withdrawals in earlier, lower-income years may keep you under them later. Whether that trade works out depends on the numbers for that year.

What happens to the RRSP or RRIF at death

Generally, the value of an RRSP or RRIF at death is treated as income on the person's final return. A surviving spouse or common-law partner is the main exception. If the RRSP is paid to them and moved directly into their own RRSP or RRIF before the end of the year after the death, they report it and claim an equal deduction on their own return. With a RRIF, a spouse who is set up to keep receiving the payments becomes the new annuitant. A large balance left to someone else can mean a large tax bill on the final tax return.

What decides the pace

• Your income in the years between stopping work and turning 71, and when CPP and OAS start.
• Your spouse's or partner's income, and whether splitting is available.
• How close you'll be to the OAS repayment threshold later.
• Who inherits, and whether a spouse can take the plan over.
• What you actually need to live on, and when.

Drawing down early can mean paying tax sooner at a lower rate. It can also mean paying tax you didn't need to. That's why it's worth planning the years together rather than one at a time.

How we help

RRSP retirement meltdowns are part of our strategic financial advisory work. We sit down with your numbers, explain what they mean for the decision in front of you, and show our reasoning so you can push back on it. Planning for retirement is one of the things we build a forecast for and stress-test. Our post on tax for retirees covers the slips and credits that come with retirement.