Most Canadians know why they should contribute to an RRSP.
You get a tax deduction today. Your investments grow inside the plan without being taxed each year. You defer the tax until later, hopefully when your income is lower.
It is a smart system. And for most working Canadians, contributing to an RRSP makes a lot of sense.
But here is what almost nobody talks about.
Getting the money out matters just as much. Maybe more.
Because if you do not have a plan for taking money out of your RRSP or RRIF, you could end up handing a massive, completely avoidable tax bill to the government. Not just in retirement. The day you die.
First, Let Us Talk About How Canadian Tax Actually Works
Canada uses a progressive tax system. The more you earn in a single year, the higher the rate you pay on each additional dollar.
You pay a lower rate on your first dollars of income. A higher rate on the next layer. And an even higher rate after that.
In Ontario right now, the top combined federal and provincial tax rate is 53.53%. That means for every dollar above a certain income threshold, you keep less than 47 cents.
This is exactly why contributing to an RRSP while you are working makes sense. You put money in when your tax rate is high. You get the deduction at that high rate. And the plan is to pull it out later when your income is lower and your rate is lower.
That is the logic. And it is sound.
The problem is most people nail the contribution side and completely ignore the withdrawal side.
I covered the Canadian progressive tax system in detail in my video on tax credits vs tax deductions. Link at the bottom of this post. It is worth watching before diving into these strategies: https://youtu.be/BSfjbZWyc3U?si=adp8iGBcmmFNrmBO
RRSP vs. RRIF: A Quick but Important Distinction
Before we go further, a quick clarification that matters.
An RRSP is the savings plan you contribute to during your working years. You must convert your RRSP to a RRIF — a Registered Retirement Income Fund — by December 31 of the year you turn 71. After that, no more contributions. You are in drawdown mode.
Once you have a RRIF, you must withdraw at least a minimum amount each year. That minimum is calculated based on your age and the value of your account at the start of each year. It increases as you get older.
Why does this distinction matter? Because some strategies — like pension income splitting — only apply to RRIF withdrawals, not RRSP withdrawals. I will flag this as we go.
What Actually Happens to Your RRSP or RRIF When You Die
Here is the part most Canadians never think about until it is too late.
When you die, CRA treats your entire RRSP or RRIF balance as income in your final tax return. Every single dollar. Added to your income for the year you died.
After a lifetime of contributions, your plan might hold a significant balance. All of it lands on your final tax return in one year. It gets taxed at the highest rates because it all hits at once.
There is an exception if you have a spouse or common-law partner. Your RRSP or RRIF can roll over to their plan on a tax-deferred basis. But the tax is not gone. It is just postponed to when they withdraw or pass away.
If you are the surviving spouse, or if you have no spouse, that entire balance hits the final return.
At some point, someone will pay tax. That is the general rule in Canada.
The question is whether you pay on your terms, or whether CRA decides the timing for you.
The Mistake Most People Make: Waiting Too Long
Most Canadians default to one of two approaches.
They wait until they are forced to convert to a RRIF at 71 and withdraw the bare minimum each year. Or they spend their non-registered savings and TFSA first, leaving the registered plan untouched as long as possible.
Both approaches feel conservative and safe. Both can lead to a much larger tax bill later.
By the time you hit 71 and start mandatory RRIF withdrawals, you may also be receiving CPP, OAS, and other retirement income. Stack RRIF withdrawals on top of all that, and suddenly you are in a very high tax bracket every single year. Exactly the opposite of what the RRSP was designed for.
Large withdrawals can also push your income above the OAS clawback threshold, which sits at $95,323 in 2026. For every dollar above that, you repay 15 cents of OAS. This is another hidden cost of waiting and bunching income into later years.
And if you die with a large balance still sitting there, the tax hit on the final return can be enormous.
This is manageable. But it requires a plan. And the plan should start much earlier than most people think.
Strategy 1: Start Withdrawing Earlier Than You Think
The most underused strategy is simple. Start withdrawing from your RRSP or RRIF sooner, in years when your income is lower.
If you retire early, take a sabbatical, switch jobs, or have any year with lower than usual income, that is an opportunity. Your withdrawal in a low-income year is taxed at a much lower rate than it would be at 72 when everything else is flowing in.
You are not trying to empty the plan overnight. You are spreading the tax hit across many lower-income years instead of concentrating it into high-income years or your final return.
Take those after-tax withdrawal funds and put them into your TFSA. You are shifting money from a fully taxable environment into a completely tax-free one. Future growth in the TFSA is never taxed again.
Strategy 2: Withdraw From the Right Account First
Once you start withdrawing in retirement, the order in which you tap your accounts matters enormously. Most people get this wrong.
The default instinct is to spend non-registered savings first, then TFSA, and leave the RRSP or RRIF for last. It feels like you are protecting the registered plan. In many cases, this is exactly backwards.
Your TFSA grows completely tax-free. Every dollar that stays there and compounds comes out tax-free forever. Spending it early gives up that compounding unnecessarily. Your RRSP or RRIF, on the other hand, keeps growing inside the plan — but every dollar of that growth will eventually be taxed as income when it comes out.
So in many situations, the smarter move is to draw from your RRSP or RRIF in the low-income early retirement years, let your TFSA keep compounding untouched, and use your non-registered savings strategically in between.
You are paying tax on your RRSP or RRIF at a lower rate now, instead of a higher rate later. And your TFSA keeps growing tax-free in the background.
The right sequence depends on your specific income, tax brackets, and goals. But do not assume non-registered first is always the safest move. Often it is not.
Strategy 3: Convert to a RRIF Early and Use Pension Income Splitting at 65
You do not have to wait until age 71 to convert your RRSP to a RRIF. You can do it earlier.
Why would you? Because once you have a RRIF and you turn 65, you unlock pension income splitting.
Pension income splitting lets you allocate up to 50% of your RRIF withdrawals to your spouse for tax purposes. No money actually moves. It is just reported differently on your tax returns.
If you are in a higher tax bracket than your spouse, this shifts income to the lower-rate taxpayer. The household pays less tax overall.
Your spouse does not need to be 65 to receive the split income. They do need to be 65 or older to also claim the federal pension income tax credit on that income, which is a bonus. But the income splitting itself works regardless of their age.
You also have full flexibility on how much you withdraw from your RRIF each year. There is a minimum you must take out. But you can take out more whenever it makes sense and vary the amount from year to year.
Important: pension income splitting applies to RRIF withdrawals specifically, not RRSP withdrawals. Converting to a RRIF at 65 rather than waiting until 71 unlocks this opportunity sooner.
Strategy 4: Delay CPP and OAS — and Use That Window Aggressively
This strategy ties several pieces together.
Most people take CPP and OAS as soon as they qualify because the money feels good and they want it now. But delaying those benefits — while drawing down your RRSP or RRIF in the gap years — can dramatically reduce your lifetime tax bill and increase your total retirement income.
How CPP works
You can start CPP as early as age 60, but your payment is permanently reduced by 0.6% for every month before age 65. That is a 36% reduction if you start at 60.
Delay past 65 and your payment increases by 0.7% for every month you wait, up to a maximum of 42% more at age 70.
The maximum CPP retirement pension in 2026 is $1,507.65 per month at age 65. The average new recipient receives $803.76 per month. Your actual amount depends on your contribution history. The longer you wait past 65, the bigger the permanent cheque.
How OAS works
OAS starts at 65 for most Canadians. You cannot take it earlier.
For every month past 65 that you wait, your OAS payment increases by 0.6%, up to a maximum of 36% more at age 70.
The maximum OAS in 2026 is $742.31 per month for ages 65 to 74. Delay to 70 and that becomes approximately $1,009 per month — for life. At 75, there is an automatic additional 10% increase on top of that.
The strategy: use the gap years
If you retire in your early to mid-sixties, you have a window before CPP and OAS kick in. Use it deliberately. Draw down your RRSP or RRIF in those years when your income is lower and your tax rate is lower. Let CPP and OAS grow by waiting.
When they do start, you receive a permanently larger cheque for the rest of your life. And your RRSP or RRIF balance is smaller by then, which means less income stacking in later years. Lower total income. Lower tax rate. Less clawback risk.
The pieces all connect. But you need to map it out.
Strategy 5: Use a Spousal RRSP With Intention
A spousal RRSP is not just a withdrawal timing trick. Used with intention, it is a long-term income-splitting tool that can reduce your household tax bill for decades.
If your spouse earns less than you, or has a smaller RRSP balance, you can contribute directly to an RRSP in their name. You get the tax deduction at your higher rate. They own the account. And eventually, when they withdraw, that income is taxed in their hands at their lower rate.
Think of it as deliberately building a more balanced retirement income picture from the start. Instead of one spouse holding a massive RRSP that creates a giant tax bill, you are intentionally distributing the balance across two people. Two people with moderate retirement incomes pay significantly less total tax than one person with a large concentrated RRSP.
This is especially powerful if your spouse is younger, stays home, works part-time, or has career gaps. Those are all years when their income is low and their RRSP is not building. A spousal RRSP fills that gap on purpose.
There is one important rule. If you contribute to a spousal RRSP and your spouse withdraws within three calendar years of your last contribution, that withdrawal gets attributed back to you and taxed in your hands. Plan the timing carefully. Stop contributing well before they plan to start withdrawing.
If timed correctly, this strategy also gives you an income-splitting tool in your fifties and early sixties — years before the RRIF pension splitting option becomes available at 65.
Strategy 6: Invest Strategically Across Your Accounts
The previous strategies are about when and how you take money out. This one is about making sure the money you build outside your registered plan is taxed as little as possible — so you need to draw less from your RRSP or RRIF in the first place.
Most people think hard about what to invest in. Very few think about where to hold it.
But where an investment lives can be just as important as the investment itself.
Here is the key insight. Everything that comes out of your RRSP or RRIF is taxed as regular income. One hundred percent. No exceptions. It does not matter whether the investment inside earned interest, made capital gains, or paid dividends. When it comes out, CRA treats it all the same way.
Outside a registered plan, it is a different story. Capital gains are only 50% included in your income. Eligible Canadian dividends come with a tax credit. These advantages exist — but only outside your RRSP or RRIF.
In a perfect world, everything would go into your TFSA. Growth is tax-free. Withdrawals are tax-free. There is no better shelter in Canada.
But the TFSA has a contribution limit. In 2026, the cumulative room for someone who has been eligible since 2009 is $109,000. That fills up. So you need a plan for what comes next.
Let me show you why it matters with a simple example.
Say you have a $10,000 capital gain on a high-growth stock.
If that stock is held in a non-registered personal account, only 50% of the gain — $5,000 — is included in your taxable income. At a 50% marginal rate, you pay $2,500 in tax. The other $5,000 is completely tax-free.
If that same stock is held inside your RRSP or RRIF, the full $10,000 comes out as regular income when you withdraw it. At 50%, you pay $5,000 in tax. Double.
Same investment. Same gain. Double the tax bill — just because of where it was held.
Now compare that to a private mortgage earning $10,000 in interest income.
In a non-registered account, the full $10,000 is taxable. At 50%, you pay $5,000 in tax.
Inside your RRSP or RRIF, the full $10,000 is also taxable when it eventually comes out. Same $5,000 tax — just deferred.
The difference is minimal. So holding interest income inside your RRSP or RRIF costs you nothing extra. You defer the tax. That is a pure win.
The framework, in order of preference:
Your TFSA first — for everything, but especially high-growth investments. Tax-free growth on your biggest gains.
Beyond your TFSA — put capital gain investments and Canadian dividend stocks in your non-registered account. The 50% inclusion rate and dividend tax credit still apply there. Better than losing those advantages inside a registered plan.
Your RRSP or RRIF — for interest-bearing investments like GICs, bonds, and private mortgages. Fully taxable regardless of where you hold them, so deferral inside the plan is a pure win.
And for US stocks specifically — hold them in your RRSP or non-registered account, not your TFSA. The reasons are technical, but the general guidance is consistent: keep US holdings out of your TFSA.
The honest caveat.
This is easier said than done. Contribution room limits what goes where. Not every investment is eligible in every account type. Your overall asset mix has to make sense for your goals and risk tolerance first. Tax efficiency is the second layer, not the first.
But being intentional about this — even partially — adds up meaningfully over time.
Strategy 7: The RRSP Meltdown Strategy
Before we dive in, a quick clarification on the name.
This entire post is about strategies to reduce the tax on your RRSP and RRIF over your lifetime. In that sense, all seven strategies are part of a broader meltdown approach.
But Strategy 7 refers to something very specific. It is a particular financial arrangement where you borrow money to invest, and use your RRSP or RRIF withdrawals to pay the interest on that loan. The interest deduction offsets the tax on the withdrawal. That specific mechanic is what we are talking about here.
You borrow money through an investment loan and invest those borrowed funds in a non-registered account. The investments need to earn income — dividends, interest, or capital gains.
Each year, you withdraw from your RRSP or RRIF. That withdrawal is fully taxable. You use those funds to pay the interest on your investment loan.
Under the Income Tax Act, interest on money borrowed to earn investment income is tax-deductible. So your withdrawal creates taxable income, and your loan interest creates an offsetting deduction. In a well-structured scenario, the two roughly cancel each other out.
Meanwhile, your non-registered portfolio is growing. The income it generates — capital gains and eligible Canadian dividends — is taxed at much lower effective rates than RRSP or RRIF withdrawals. Over time, you shrink your registered plan and build a more tax-efficient portfolio outside it.
The honest reality check
- The loan must be used to earn income. CRA requires this for the interest to be deductible.
- You are using leverage. If the market drops, you still owe the loan. The risk is real.
- You need ongoing cash flow to service the loan. This is not a passive strategy.
- Withholding tax applies to RRSP and RRIF withdrawals above certain amounts. This reduces the cash available for your interest payment and affects how the numbers work in practice.
- This must be structured and documented correctly. This is technical. It must be done properly.
The Bottom Line
Your RRSP and RRIF are two of the most powerful tools available to Canadians.
But a savings plan without a withdrawal plan is only half a strategy.
The progressive tax system that made your RRSP contributions so valuable works the same way on the way out. The more income lands in a single year, the more of it gets taxed at the highest rates.
Withdraw early. Withdraw from the right accounts. Split income with your spouse. Delay CPP and OAS while using the gap years strategically. Build a balanced retirement picture through a spousal RRSP. Be intentional about where you hold each investment.
None of this is complicated. It just requires a plan. And the earlier you start, the more options you have.
Avoiding RRSP and RRIF withdrawals is easy. Avoiding a massive tax bill at retirement or at death? That requires strategy.
Want to build a personalised RRSP and RRIF withdrawal strategy before retirement forces your hand? Book a consultation with my team today.
Next Steps
We help everyday Canadians navigate the confusing world of taxes—so you can keep more of what you earn. Want to make sure you’re not leaving money on the table? Book a consultation with my team today.
Until next time, happy Canadian Real Estate Investing.
Cherry Chan, CPA, CA
Your Real Estate Accountant
