How RRSP and RRIF Withdrawals Are Taxed

Every dollar you take out of a Registered Retirement Savings Plan (an RRSP, a tax-sheltered retirement savings account) is taxed as regular income, whether it came from your own deposits or from growth inside the plan. Once your RRSP becomes a Registered Retirement Income Fund (a RRIF, the account you draw retirement income from), every dollar of that income is taxed too. The bank holds some tax back when you withdraw, but the amount you actually owe is sorted out when you file your return. This page walks through how it all works, step by step.

If you want the wider picture of retirement income beyond RRSPs, our guide to how taxes work in retirement covers CPP, OAS, and other income sources too.

Why the tax shows up now

The main perk of an RRSP is that deposits cut your taxable income in the years you contribute. Growth inside the plan compounds without being taxed along the way. The trade-off is simple: the tax was put off, not erased.

When you withdraw, the Canada Revenue Agency treats the money as if it were salary. It stacks on top of your other income for the year. RRIF payments follow the same rule, and so do most transfers out of the plan.

One exception worth knowing: money moved from an RRSP into a Tax-Free Savings Account (a TFSA, another registered account where growth grows tax free) does still count as a withdrawal first. You pay tax on it like any other withdrawal. After that, growth in the TFSA stays untaxed.

Withholding tax: the part taken off the top

When you pull money out of an RRSP outside a RRIF, the bank holds back a slice called withholding tax, the tax deducted before you receive your money. The standard federal rates have stayed the same for many years:

Amount withdrawn	Tax withheld	You receive
Up to $5,000	10%	90%
$5,001 to $15,000	20%	80%
Over $15,000	30%	70%

This table applies in every province and territory except Québec. If you live in Quebec, provincial tax is withheld on top of these federal amounts, so your cheque will differ.

For example, suppose you withdraw $10,000. The bank sends you $8,000 and passes $2,000 to the CRA on your behalf.

Withdrawals from a RRIF work differently. The required minimum payment itself reaches you with no tax taken off. Any amount you take above the minimum, though, automatically has withholding applied at the same standard rates shown earlier. Either way, remember: no withholding does not mean no tax. You settle up at tax time regardless.

These figures come from the CRA. Rules occasionally shift, so confirm current details on the CRA's RRSP page.

Why the withholding may not cover the whole bill

Here is the part that surprises people most. The flat rate held back is only a guess at what you owe. Your real bill depends on something called your marginal tax rate, the percentage of tax you pay on your last dollars earned, which combines federal and provincial tax.

For example, imagine Sam retires at 61 with no pension yet. Late in the year he needs cash, so he takes $10,000 from his RRSP. The bank withholds 20%, or $2,000, and gives him $8,000. His only other income that year is about $12,000 from odd jobs. On top of that, his total income lands him at a combined rate of roughly 24% on this withdrawal. The tax on that $10,000 works out to about:

$10,000 x 24% = $2,400

He had $2,000 withheld, so when he files he owes about $400 more.

Now picture Priya, who withdrew $30,000 in a year when she also collected a large work pension. Her highest dollars for the year sit in a combined rate of about 43%. The tax on that $30,000 is roughly:

$30,000 x 43% = $12,900

Only 30% was withheld, which is $9,000. Even though the biggest withholding rate applied, she still owes about $3,900 more at filing.

Both examples are simplified. Real bills depend on your province, credits, and deductions. The takeaway holds either way: treat the withheld amount as a down payment, not the final price.

Drawing from a RRIF

By the end of the year you turn 71, an RRSP generally has to close. Most people roll it into a RRIF, which pays you income in retirement instead of accepting deposits.

A few things to know:

• Each year you must take at least a minimum amount. The lowest percent rises as you age, starting around five percent in your early seventies.
• Every dollar of that mandatory payment counts as income, taxed like employment earnings.
• You can take more than the minimum, and anything above it usually carries the same withholding rates shown earlier.

Because the minimum applies to the balance, a large RRIF forces larger taxable payments each year. That is why the size of your RRSP entering your seventies shapes your later tax bills. The CRA lists the minimum percentages on its RRIF page.

One worked example, start to finish

Let's trace Lena, age 65, newly retired. She has no work pension.

Year one: she withdraws $25,000 from her RRSP. The withholding is 30%, or $7,500, so she receives $17,500.

Her total income for the year: about $8,000 of interest and dividends plus the $25,000 withdrawal, roughly $33,000. Much of that falls into low tax brackets, so her total tax on the year lands somewhere near $4,000. Since $7,500 was already sent to the CRA, she expects a sizable refund.

Year ten: Lena is 75, drawing the minimum from her RRIF, now grown to $300,000. The CRA's minimum percentage at age 75 is 5.82%, so her required withdrawal is:

$300,000 x 5.82% = $17,460 of taxable income each year

On top of CPP, OAS, and investment income, that RRIF payment keeps her in middle tax brackets every single year. Nothing is wrong with that. It just means she plans her spending around what arrives after tax.

Things that change how much tax you pay

Your withdrawal habits matter more than the withholding table. A few patterns shape the outcome:

Spreading withdrawals across years. Pulling $40,000 in one year stacks that income into higher brackets. Taking $20,000 in each of two years can cost noticeably less in total tax.

Timing around low income years. The stretch between retiring and taking CPP or OAS, usually between 60 and 65, can be your lightest tax years. Some people deliberately draw RRSP money during that window. For readers mulling that gap, our guide on retiring early when benefits start later lays out the trade-offs.

Watching other benefits. Higher RRIF income can shrink Old Age Security through the recovery tax, a clawback on OAS that begins above a net income level that adjusts each year. Since CPP and OAS themselves are also taxable income, see our breakdown of whether CPP and OAS are taxable.

No single order of withdrawals suits everyone. The best sequence depends on your pension, your spouse's income, and your age, so weigh options against your own numbers.

Sorting this out by hand is tedious. This is exactly the job of When Can I Retire: it works out the age you can retire, counts your CPP, OAS, and RRIF income, applies taxes and inflation, and shows every step of the math. You can type your numbers or upload a statement, and the basic check is free at /signup.