Tax-efficient ways to withdraw from your RRSP

Take out as little as you can to extend tax deferral

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From the January 2016 issue of the magazine.

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A: Last year, in my mid-50s, I was diagnosed with a serious ailment, which forced me to quit my job and start collecting long-term disability. Since I don’t have taxable income for this year, and most of my assets are in my RRSP, what would be the most tax-efficient way for me to withdraw money from my RRSP savings?

—R.J., Mississauga, Ont.

Q: Take out as little as you can, to extend the tax deferral as long as you can, says Dean Paley, Burlington, Ont.-based CPA. “If you are single, then you might want to withdraw $11,327—the basic personal tax amount.” You would have no tax payable at the end of the year. If you are married, this strategy doesn’t work because your spouse would have claimed the credit and drawing out from the RRSP means no tax is saved in the transaction. If this is the case, defer taking funds from the registered plans as long as possible. In looking at your retirement, you should also consider what you’ll get from CPP and OAS. You should also consider whether you may be able to re-enter the workforce down the road. All that said I recognize that your income needs may make it difficult to hold off on drawing from you RRSP. Best of luck to you on your health.

Bruce Sellery is a frequent guest on Cityline, and also writes for Today’s Parent and Chatelaine. Do you have your own personal finance question? Write to us at

4 comments on “Tax-efficient ways to withdraw from your RRSP

  1. You should point ou that the financial institution will still charge withholding.


  2. FYI, CPP Disability is eligible for RRSP.


  3. Also worth checking if he is eligible for the Disability Tax Credit, which will increase the amount that can be withdrawn without incurring tax.


  4. If your RSP is large (> $500,00) and you do not expect to work again, you may want to consider withdrawing annual amounts that are within the limits of the lowest tax bracket ($45,282 Federal, or $41,536 Ontario). Otherwise your RSP will have a huge balance upon death which will likely get taxed at the highest tax bracket.

    The idea is to melt down your RSP within the lowest tax bracket possible throughout your retirement years so that you you have a manageable balance by the time you are forced to withdraw the minimum amounts during your RIF years (and upon death). You always want to manage your annual income below $74,000, so that you do not lose any OAS payments from claw-backs. This becomes more challenging when you start receiving OAS and CPP payments while your RSP grows at the same or faster rate than your withdrawals. You need to analyze your numbers (including your life expectancy) so that you can obtain a steady withdrawal strategy than will not leave your RSP completely depleted while you are alive, or overly large during your RIF withdraw years (and beyond).

    Finally, even if your withdrawal strategy requires you to withdraw more income than you actually need, does not mean you have to spend it all. Simply reinvest the excess amount in an open account so that it can grow too. Investments that earn you capital gains income is taxed at 50% – meaning that 50% of the gain is yours tax-free, while the other 50% is added to your annual income and taxed within the tax bracket your income falls within.


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