The order in which you withdraw from your RRSP versus TFSA matters significantly for your tax bill. Generally, withdraw from your TFSA first because TFSA withdrawals are tax-free and don't trigger income tax, while RRSP withdrawals are taxed as income at your marginal rate. However, the best strategy depends on your current income level, upcoming tax situations, and long-term retirement plans. This article walks you through the key factors that determine which account should be your priority. Both accounts let you save money, but they work very differently when it comes time to take money out. Your TFSA was designed to be flexible: you can withdraw anytime, no tax, and you get your contribution room back the following January 1st. Your RRSP, on the other hand, is the government's way of encouraging long-term retirement savings. Every dollar you withdraw is added to your taxable income for that year. The difference is real. If you withdraw $10,000 from a TFSA, you keep all $10,000. If you withdraw $10,000 from an RRSP while earning $50,000 per year, you might owe $2,000 to $3,000 in taxes, depending on your province.
Withdraw from your TFSA first because it's completely tax-free and doesn't increase your taxable income. Save your RRSP for retirement or use it only when you're in a low-income year where the tax impact is minimal.
No. RRSP withdrawals are always taxable income. Your employer or bank withholds 20-40% at the source, but you'll owe the full tax bill based on your marginal rate when you file your return in 2026.
Your TFSA contribution room comes back on January 1st of the following year. For example, if you withdraw $5,000 in 2026, you can recontribute $5,000 starting January 1, 2027, without affecting your annual limit.
RRSP withdrawals increase your taxable income, which can reduce or claw back income-tested benefits like OAS, GIS, or provincial benefits. TFSA withdrawals have no effect on your benefit eligibility.
There's no CRA penalty for early RRSP withdrawal, but withholding tax applies (20-40%), and you lose that contribution room forever. The only exception is the Home Buyers' Plan, which allows tax-free withdrawal for your first home.