RRSP is large — is that a problem? Withdrawal order, explained

Why order matters at all

In retirement, the same dollar withdrawn from different accounts is taxed very differently. RRSP and RRIF withdrawals are fully taxed as income. TFSA withdrawals are tax-free and do not affect income-tested benefits. Non-registered withdrawals are a mix of capital and taxable gains or income. The order you choose changes your tax bill, your benefits, and how long the money lasts.

The age-71 deadline

An RRSP must be wound up by the end of the year you turn 71 — most people convert it to a RRIF (Registered Retirement Income Fund) or an annuity. From the following year, RRIFs have mandatory minimum withdrawals that rise with age. Those forced withdrawals are fully taxable, whether you need the money or not, which is why planning often starts years before 71.

Tax brackets and OAS clawback

Large forced RRIF withdrawals can push you into a higher tax bracket and trigger recovery tax (clawback) on Old Age Security benefits, which begins when net income passes an indexed threshold (about $93,000 in 2025). Spreading RRSP withdrawals over more years — for example, drawing some RRSP income in lower-income years before CPP and OAS begin — can keep each year's income in a lower bracket. What fits depends on your accounts, health, and family situation.

Where the TFSA fits

Because TFSA withdrawals are tax-free and invisible to income-tested benefits, many plans save TFSA room for later retirement years or for large one-off expenses — a year of travel, helping a child, or a health cost — where an RRSP withdrawal of the same size would spike that year's taxable income.

An estate note, and a starting point

Whatever remains in an RRSP or RRIF at death is generally taxed as income on the final return (subject to rollover rules for a spouse or partner), while TFSA assets pass tax-free to beneficiaries. For some families, that alone changes the drawdown order. A sensible starting point is to map, three to five years before retirement: expected income sources by year, the RRIF minimum schedule, and the years when your income will be naturally low. Our pre-retirement checklist in Resources lists the questions to work through.