When you retire, the order in which you withdraw money from your RRSP and TFSA matters significantly for your tax bill. The best strategy is to withdraw from your TFSA first to cover living expenses, since TFSA withdrawals are tax-free and don't affect income-tested benefits like Old Age Security (OAS) or the Guaranteed Income Supplement (GIS). Once your TFSA is depleted, you can then draw from your RRSP strategically based on your income level and tax bracket. This approach can save you thousands in taxes over your retirement years. Your RRSP and TFSA serve different purposes in retirement. Understanding the tax impact of each account helps you keep more money in your pocket. TFSA withdrawals: - Are completely tax-free - Don't count as income for the CRA - Don't trigger OAS clawback - Don't affect GIS eligibility - Contribution room returns on January 1 the following year RRSP withdrawals: - Are fully taxable as income - Increase your net income (which affects benefit calculations) - Subject to withholding tax at source (20-30% depending on amount) - Mandatory withdrawals begin at age 71 - May push you into a higher tax bracket If you have both accounts in retirement, here's why
No. TFSA withdrawals are completely tax-free and never count as income for the CRA. They won't trigger OAS clawback or affect GIS eligibility. Only your net income from other sources (RRSP, pensions, employment, investment gains) is considered for benefits.
Not until the following calendar year. When you withdraw from a TFSA, that contribution room returns on January 1 of the next year. If you withdraw $5,000 in July 2026, you can re-contribute it starting January 1, 2027.
Your total taxable income increases, which may push you into a higher tax bracket, reduce OAS benefits, or affect other income-tested credits. The withholding tax (20-30% at source) isn't your final tax either; you may owe more at tax time. Spacing withdrawals across multiple years often minimizes this impact.
In 2026, OAS clawback begins at a net income threshold (indexed annually by the CRA). If your income exceeds this threshold, you'll repay $0.15 of OAS for every dollar over the limit. Check the CRA website for the current year's exact threshold.
Not always. If your TFSA is very small and your RRSP is large, withdrawing only TFSA might extend your retirement fund artificially. A balanced approach considers your total assets, your income tax bracket, and when you need the money. A tax professional can model this for your specific situation.