RRSP withdrawal rules after retirement: A complete guide
RRSP withdrawal rules after retirement can be tricky to navigate, especially since they’re constantly changing. In this post, we’ll give you an overview of RRSP rules after retirement, show you how to find quality advice, and discuss alternative sources of cash in case you’d like to let your nest egg grow for a while longer.
RRSP withdrawal rules after retirement: Overview
According to the Canada Revenue Agency (CRA), your Registered Retirement Savings Plan (RRSP) is considered mature on December 31 of the year you turn 71. At this point, you’ll need to take one of three actions:
- Withdraw your funds entirely
- Convert your RRSP into a Registered Retirement Income Fund (RRIF)
- Purchase an annuity using the money
Prior to turning 71, however, the federal government does still allow you to make RRSP withdrawals. The implications will vary depending on your circumstances, including how much money you earn and in which province you reside.
It’s these implications – rather than a minimum age (there is none) – that dictate whether withdrawing funds from your RRSP is a good idea.
The first of these is the withholding tax. Here’s what your financial institution will immediately hand over to the CRA if you live in a province or territory other than Quebec, according to the CRA.
Source: Canada Revenue Agency
| Size of Withdrawal | Withholding Tax |
| $0 – $5,000 | 10% |
| $5,001 – $15,000 | 20% |
| $15,000 and up | 30% |
In Quebec, the withholding tax is levied at these rates.
| Size of Withdrawal | Withholding Tax |
| $0 – $5,000 | 5% |
| $5,001 – $15,000 | 10% |
| $15,000 and up | 15% |
Quebec residents also pay a provincial sales tax set by Revenu Quebec.
Throughout the country, RRSP withdrawals are also included in your taxable income for the year. If your marginal tax rate is higher than the withholding tax, you’ll owe money.
These two implications – withholding and income taxation – are among the main reasons experts advise against making RRSP withdrawals while you’re still young and/or working.
Even though the government does not impose fines for “early” withdrawals (after all, there’s no minimum withdrawal age), taxation will eat into your nest egg substantially. This taxation will also likely occur at a higher rate when you’re younger since you may have employment income placing you in a higher tax bracket.
This is why taking money out of your RRSP after retirement is generally the way to go. The exception tax-wise would be if you are participating in something like the Home Buyers’ Plan or Lifelong Learning Plan.
These are federal programs designed to help adults achieve financial goals using their nest egg. You’re still robbing yourself of growth potential by pulling your money out of investments prematurely, though. This is why many people instead consider home equity loans for funding an education or investment property later in life. More on this shortly.
Options for taking money out of your RRSP after retirement
Let’s take a closer look at the three options for making RRSP withdrawals when you’re retired and 71 years of age or older.
Withdrawing your funds entirely
While making a lump-sum withdrawal from your RRSP might seem enticing, the downside is that you’ll have to pay a substantial amount of taxes in one go.
Depending on how much money you have and your expected lifespan, you may run out at some point. Even if you have enough money to thrive for the rest of your life, you could live much more comfortably (and perhaps even leave a nice inheritance) if most of it continued growing.
Registered Retirement Income Fund (RRIF)
With an RRIF, you transfer assets from your RRSP to a financial institution known as a carrier. The carrier then releases an agreed-upon amount of your money periodically. There are minimum amounts that get higher as you age. There is no maximum payout amount.
The nice thing about an RRIF is that your money can remain invested in various assets like mutual funds, ETFs, and stocks. Your carrier will simply sell assets as needed to make your payouts.
Because you can set up an RRIF anytime prior to turning 71, this may be advantageous in certain situations, such as when you’re retiring at a younger age like 60. Continued growth can be very reassuring.
You’ll still pay taxes on withdrawals in excess of the minimum. The tax rates are as follows.
| Size of Withdrawal | Withholding Tax |
| $0 – $5,000 | 10% |
| $5,001 – $15,000 | 20% |
| $15,000 and up | 30% |
Source: Canada Revenue Agency
Annuity
An annuity provides guaranteed income, either for life or an agreed-upon period. You won’t pay withholding tax when you purchase the annuity but rather when you begin receiving payments., As with other types of retirement fund withdrawals, the taxation will occur at your income rate for the year, which should be low in retirement.
How to choose the right strategy for RRSP withdrawals when retired
Choosing a strategy for RRSP withdrawals after retirement is not something to take lightly. The wrong decision can negate the sacrifices you’ve made to even have a sizeable nest egg.
Be sure to consult with a financial advisor before settling on any particular RRSP withdrawal strategy. Here are some factors to consider as you do.
Consider your spousal situation
Have you contributed to your spouse’s RRSP over the years? If so, there’s something called the attrition rule, which affects who needs to file the withdrawal as income on their return. It’s a very nuanced determination that depends on when the contributions and withdrawals are made, along with many other factors.
Make sure to speak about this with your financial advisor.
Consider your employment plans
Before taking money out of your RRSP after retirement, fully evaluate your situation and whether you may have other sources of income in later years. For example, it’s increasingly common for retirees to take on part-time work as a means of earning extra cash. You’ll want to be sure this income doesn’t make your planned RRSP withdrawals after retirement too expensive tax-wise.
Ask about the latest RRSP withdrawal rules after retirement
RRSP withdrawal rules after retirement have changed substantially throughout the years. Make sure you keep up-to-date on the regulations, which your advisor should have no problem assisting you with.
Frequently asked questions
Looking to delay RRSP withdrawals after retirement? Alpine Credits can help
In researching RRSP withdrawals when retired, you may discover it’s advantageous to let the money grow for a little while longer.
Whether you’re cashing out via an RRIF or annuity, you may still find yourself in need of some extra cash to cover expenses. If you own your home, Alpine Credits can help!
We’ve been providing home equity loans for more than 50 years. Learn more about what we do and how we help homeowners unlock the equity built up in their properties here. Visit this page to learn more about the various needs a home equity loan can help fulfill.
Unlike taking money out of your RRSP after retirement, a home equity loan does not involve withholding taxes or anything of that nature. Just access cash when you need it and then make payments at a very reasonable interest rate!
At Alpine Credits, Homeowners Get Approved.
Call (1-800-587-2161) to find out how you can subscribe for RESP through your home equity.