RRSP Withdrawals: Tax, Withholding, and When It Makes Sense
Taking money out of an RRSP is easy — and expensive. Every dollar you withdraw is added to your taxable income for that year, the contribution room is gone for good, and tax is withheld at source before the money reaches you. There are two ways to take money out without paying tax on it — the Home Buyers' Plan and the Lifelong Learning Plan — and everything else is taxed.
In short
RRSP withdrawals are fully taxable income in the year you take them out, and the contribution room is permanently lost. Tax is withheld at source: 10% on amounts up to $5,000, 20% on $5,001 to $15,000, and 30% above $15,000 outside Quebec. The withholding is a prepayment, not the final bill — your actual tax is worked out on your return.
Withdrawals are taxable income
Unlike a TFSA, where withdrawals are tax-free, an RRSP withdrawal is added to your income for the year. Withdraw $10,000 and your taxable income rises by $10,000. That can push you into a higher bracket, and it can reduce income-tested benefits — RRSP withdrawals count as income for the Old Age Security recovery tax and the Guaranteed Income Supplement. There is no dollar threshold for that effect stated on this site, because the 2026 threshold was not re-verified; the mechanism is what matters.
Withholding tax at source
| Withdrawal (outside Quebec) | Withholding |
|---|---|
| Up to $5,000 | 10% |
| $5,001 – $15,000 | 20% |
| Over $15,000 | 30% |
In Quebec the federal rates are 5%, 10%, and 15%, plus 14% provincial withholding. The rate applies to the whole withdrawal, not just the part above a threshold — a $16,000 withdrawal is withheld at 30% on the full $16,000. And your financial institution combines all the lump sums it expects to pay you in the year, so splitting one withdrawal into two smaller ones does not keep you in a lower tier.
Withholding is a prepayment, not the final bill
The tax withheld at source is only an estimate. When you file your return, the withdrawal is added to your income and taxed at your actual marginal rate. If the withholding was more than the tax you owe, you get the difference back. If it was less, you pay the rest. The slip you receive is a T4RSP, and the withdrawal is reported on your return for the year you received it.
Non-residents
If you are not a resident of Canada when you withdraw, the withholding is a flat 25% under Part XIII of the Income Tax Act, and the RRSP withholding tiers do not apply. Non-residents should check whether a tax treaty changes that rate for their country of residence.
When a withdrawal makes sense
A withdrawal can make sense in a low-income year — for example, a year between jobs, or the first year of retirement before pensions and Old Age Security begin — because the tax rate on the withdrawal is low. It rarely makes sense as a way to fund spending in a high-income year, because the withdrawal is taxed at your top rate and the room is gone forever. If the money is for a first home or full-time education, use the Home Buyers' Plan or the Lifelong Learning Plan instead: both let you take the money out without tax, provided you repay it.
Sources: Canada Revenue Agency, RRSP, Canada Revenue Agency, RRSPs and related plans.