Many Canadians approaching retirement are told to start drawing from their RRSP right away. Without a clear RRSP withdrawal strategy, this advice can backfire, pushing retirees into higher tax brackets and sending more to the CRA than necessary.
In this guide, we’ll explain how to build a tax-efficient RRSP withdrawal strategy that coordinates your registered, corporate, and non-registered income, so you keep more of your hard-earned savings working for you throughout retirement.
Why Timing Your RRSP Withdrawals Matters
RRSPs are powerful for tax deferral, not tax elimination. When you withdraw funds, the full amount is taxed as income. The challeRRSPs are powerful for tax deferral, not tax elimination. Withdrawals are taxed as income, so timing matters. Poorly timed withdrawals can collide with other income sources, such as:
- Corporate dividends
- CPP / OAS benefits
- Pension income or capital gains
If you ignore timing, your total income could push you into a higher marginal tax rate. Careful sequencing is essential.
Case Study: Mark’s Retirement Dilemma
Mark, 62, was widowed with:
- $1.1 million in RRSPs
- $180,000 in a TFSA
- $1.2 million in a corporation
He planned to gradually dissolve his corporation and reduce the large tax bill that would hit his estate if his RRSPs were taxed in full at death. Initially, he considered taking $100,000 in dividends and $60,000 from his RRSP each year.
Once the dividend gross-up applied, Mark’s taxable income nearly reached $200,000. His marginal tax rate exceeded 43 percent.
The Better Approach: Draw from the Right Account First
With his advisor’s guidance, Mark instead drew the full $160,000 as eligible dividends from his corporation. The dividend tax credit lowered his tax bill to roughly $27,000 — saving him thousands.
By sequencing withdrawals this way, Mark could:
- Avoid high marginal tax rates now
- Keep RRSP funds compounding tax-free
- Plan future withdrawals during lower-income years
Building Your Own Tax-Efficient RRSP Withdrawal Strategy
To design an optimized plan:
- Map all income sources – list your RRSPs, TFSAs, pensions, rental income, and corporate holdings.
- Identify tax brackets – know when a withdrawal will push you into the next rate.
- Prioritize dividends and non-registered funds first – these often receive favourable treatment.
- Time RRSP withdrawals strategically – use lower-income years (e.g., after retirement, before CPP starts).
- Review annually – tax laws, income sources, and goals can change.
A well-designed RRSP withdrawal strategy can balance tax efficiency with cash-flow needs and helps ensure savings last throughout retirement.
Final Thoughts
RRSP withdrawals don’t have to be one-size-fits-all. By coordinating corporate dividends, pension income, and registered savings, you can reduce taxes and keep more of your retirement savings working for you.
The Atlas System guides you through a structured, step-by-step process to align your income, investments, taxes, and estate planning. A personalized plan can give you confidence and clarity throughout retirement. Explore the Atlas System and start planning your tax-efficient RRSP withdrawals today.
Watch the full video on YouTube and visit the Trans Canada Wealth Management YouTube channel for more retirement planning tips.
