One of the most common questions we get at Trans Canada Wealth is: How should I take money out of my RRSP throughout the year to keep taxes low?
When we build retirement withdrawal plans for clients, we often target a specific annual income that keeps their tax bill as low as possible. But knowing how much to withdraw is only half the battle. You also need to consider when and how to withdraw those funds.
Here’s a breakdown of the options and what we typically consider.
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Monthly RRSP Withdrawals: The Hidden Costs
Many retirees think it’s easiest to set up regular monthly withdrawals, but that approach often comes with drawbacks:
- Withholding tax adds up:
- Under $5,000 = 10% withheld
- $5,001 to $15,000 = 20% withheld
- Over $15,000 = 30% withheld
If you’re withdrawing monthly, you could be overpaying tax throughout the year. That money gets sent to the CRA right away instead of staying in your account to grow. You’ll report your actual income at tax time anyway, so paying early withholding taxes can be inefficient.
- Institutional fees:
Some financial institutions charge fees for each RRSP withdrawal. If you’re withdrawing monthly, that could result in unnecessary transaction costs.
Annual Withdrawals: More Control, Better Timing
Instead of monthly withdrawals, some clients prefer a once-per-year RRSP withdrawal near the end of the year. The key benefit is flexibility and control.
- More data, smarter decisions:
By waiting until December, you’ll already know your exact income from CPP, OAS, dividends, interest, and capital gains. That means you can calculate the perfect RRSP withdrawal to hit your targeted taxable income range. - Tax deferral advantage:
Funds stay invested longer and continue to grow before being withdrawn. That growth could be meaningful, especially in strong market years. - Pension credit eligibility (age 65+):
If you’re over 65, RRIF withdrawals (but not RRSP withdrawals) qualify for the pension income tax credit. So one strategy we use is to transfer RRSP funds to your RRIF, then withdraw from there to trigger the credit and save even more on taxes.
How Do You Live Without Monthly RRSP Income?
If you wait until the end of the year to withdraw from your RRSP, you’ll need other cash flow sources throughout the year. For example:
- TFSA withdrawals
- Non-registered dividends
- Savings or cash reserves
- Survivor pensions or CPP/OAS
Let’s say you need $5,000 per month and have $60,000 in a savings account. You can live off those funds and top them up with your RRSP withdrawal in December, essentially “refilling” the cash for the next year.
Final Thoughts
Withdrawing from your RRSP isn’t as simple as picking a number and dividing it by 12. The timing, amount, and structure of your withdrawals can all impact your taxes and overall retirement success.
Want help figuring out how much you should be withdrawing each year? Reach out to us and book an appointment on our website.
