Retirement planning often comes down to choosing when and how to make an RRSP withdrawal Canada residents rely on versus taking money from a TFSA. Knowing the RRSP vs TFSA withdrawal rules helps you manage taxes, clawbacks (OAS), and lifetime income — so you keep more of your savings in retirement.
Quick overview: RRSPs and TFSAs — the basics
RRSP (Registered Retirement Savings Plan): Contributions are tax-deductible; withdrawals are taxable as income. RRSPs are commonly converted to RRIFs (Registered Retirement Income Funds) or annuities by the end of the year you turn 71.
TFSA (Tax-Free Savings Account): Contributions are from after-tax dollars; withdrawals are tax-free and do not affect federal income-tested benefits. Withdrawn amounts create recontribution room the following year.
For more official details, see the federal guidance on RRSP withdrawals and TFSA rules:
How withdrawals are taxed and reported
RRSP withdrawals
Taxable: All ordinary RRSP withdrawals are included in your taxable income in the year of withdrawal.
Withholding tax: Financial institutions generally withhold tax at source (10–30% depending on amount and province) for lump-sum withdrawals. This withholding may not cover your full tax liability for the year.
Conversion: Converting to a RRIF doesn't trigger tax; withdrawals from the RRIF are taxable. There is a minimum annual RRIF withdrawal after conversion.
TFSA withdrawals
Not taxable: Withdrawals are tax-free and not included in income.
Recontribution room: The amount withdrawn is added back to your TFSA contribution room the following calendar year. If you recontribute in the same year without available room, you could face penalties.
See the CRA pages on withholding and contribution limits for details:
How withdrawals affect income-tested benefits
Old Age Security (OAS) clawback: OAS is reduced once your net income passes a threshold. RRSP/RRIF withdrawals increase net income and can trigger or increase the OAS clawback (the OAS recovery tax). TFSA withdrawals do not increase net income and therefore won't affect OAS.
Income-tested provincial benefits: Many provincial supplements and pharmaceutical plans look at taxable income — RRSP withdrawals can reduce eligibility; TFSA withdrawals generally won't.
For official benefit thresholds and details:
Common withdrawal strategies in retirement — step-by-step
Estimate your taxable income needs
Add expected CPP, OAS, workplace pensions, and other income.
Identify how much extra you need each year from savings.
Evaluate clawbacks and tax brackets
Map out how RRSP/RRIF withdrawals will affect your federal/provincial tax brackets and OAS clawback thresholds.
Consider modest RRSP withdrawals in years when taxable income is low.
Use TFSA as flexible income
Withdraw from TFSA to top up cash flow without affecting taxable income.
Preserve RRSP/RRIF assets for future years when tax planning could lower the tax hit (e.g., in years before OAS starts or when you have lower income).
Plan for mandatory RRIF minimums
Account for required RRIF minimum withdrawals which will create taxable income each year.
If RRIF minimums push you into higher tax brackets or OAS clawback, consider early partial RRSP withdrawals before converting to RRIF (but that can also increase income sooner).
Coordinate with estate/legacy goals
Keep TFSA funds for heirs if you want a tax-free transfer. Note: TFSA treatment on death can be complex; check beneficiary designations and spousal options.
Practical examples (simplified)
Scenario A — Lower income early retirement: Age 62, CPP deferred to 70, small workplace pension, large TFSA. Use TFSA withdrawals to meet expenses and delay RRSP/RRIF withdrawals until CPP and pension decisions are made — reducing lifetime taxes.
Scenario B — OAS cliff risk: If RRIF minimums plus other income would trigger OAS recovery, plan to withdraw some RRSP amounts before OAS starts (if you expect lower taxable income then) or use TFSA to avoid increasing taxable income.
These are illustrative; run numbers for your province and situation or meet a financial planner.
Checks before you withdraw — quick checklist
- Confirm your marginal tax rate and expected taxes on RRSP withdrawals.
- Estimate OAS/benefit impacts of added taxable income.
- Check TFSA contribution room before recontributing same-year withdrawals.
- Review RRIF minimums if you're 71+ or converting RRSPs soon.
- Confirm beneficiary designations and estate tax treatment.
- Consider withholding tax on lump-sum RRSP withdrawals.
Common mistakes and how to avoid them
Mistake: Converting too late or too early without tax planning.
Fix: Model expected RRIF minimums and taxes; stagger conversions if helpful.
Mistake: Recontributing TFSA withdrawals in the same year without room.
Fix: Wait until new calendar year or ensure contribution room exists.
Mistake: Ignoring provincial tax and benefit rules.
Fix: Check provincial thresholds and speak to a tax advisor.
Mistake: Withdrawing RRSP lump sums without accounting for withholding tax.
Fix: Calculate total tax liability and set aside funds for tax season.
Estate and beneficiary considerations
Spousal rollover: If your spouse is named beneficiary of your RRSP/RRIF, transfers may be tax-deferred until their death. TFSA spousal transfers can also be tax-free if properly designated.
Non-spousal beneficiaries: RRSP and RRIF amounts are usually fully taxable to the deceased's estate (except where a qualifying rollover exists). TFSA amounts passed to non-spousal beneficiaries may be taxable only on earnings after death — check plan-specific rules.
Consider discussing succession with your financial institution and lawyer.
Where to get help and tools
CRA my Account: check RRSP contribution history and TFSA room via CRA My Account.
Estimate tax impact: use provincial tax calculators or speak with a tax professional.
Guides and comparisons: see the Financial Consumer Agency of Canada — RRSP vs TFSA overview.
Bottom line — practical guidance
Use TFSA withdrawals first when you want tax-free, benefits-safe income and flexibility.
Manage RRSP/RRIF withdrawals carefully to control taxable income, limit OAS clawbacks, and optimise tax brackets.
Plan withdrawals as part of a holistic retirement income strategy that includes CPP/OAS timing, pensions, and non-registered assets.
If you'd like, I can run a simple numerical example with your projected CPP/OAS/pension numbers to show how different withdrawal orders affect your net income and OAS clawback.