Registered Retirement Savings Plans (RRSPs) are a great way to save for retirement while reducing taxable income, but withdrawing funds comes with tax implications. Whether you’re considering daily withdrawals or a one-time bulk withdrawal, it’s important to understand how each method affects your tax liability and annual filings.
This guide will break down RRSP withdrawal limits, tax withholding rates, and the impact on your income tax return so you can make the best decision for your financial future.
1. Can You Withdraw From an RRSP Anytime?
Yes! You can withdraw from your RRSP at any time, but there are tax consequences to consider:
✅ No Withdrawal Limits – You can take out as much as you want, but withdrawals are fully taxable.
✅ Mandatory Tax Withholding – A portion of your withdrawal is immediately deducted for taxes by your financial institution.
✅ Added to Your Taxable Income – Withdrawals are treated as income for that year, potentially pushing you into a higher tax bracket.
✅ No Option to Re-Contribute – Unlike a TFSA, RRSP withdrawals cannot be replaced unless it’s part of a special program like the Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).
Now, let’s compare daily withdrawals vs. bulk withdrawals and their tax impact.
2. Daily RRSP Withdrawals: Pros & Cons
Some people prefer to withdraw smaller amounts from their RRSP regularly rather than taking a large lump sum. But is this a good strategy?
🔹 Benefits of Daily Withdrawals
✅ Potentially Lower Immediate Tax Deduction – Each withdrawal is taxed separately, possibly staying in a lower withholding tax bracket.
✅ More Flexibility – You can adjust withdrawals based on financial needs, instead of taking a large taxable sum all at once.
✅ Avoids Large Lump-Sum Tax Hits – Breaking up withdrawals can help keep total taxable income lower, reducing the risk of moving into a higher tax bracket.
🔹 Drawbacks of Daily Withdrawals
❌ Repeated Bank Fees – Some financial institutions charge fees per withdrawal.
❌ Tax Complexity – Daily withdrawals still count as taxable income at year-end. Even if withholding tax is lower per withdrawal, you may still owe more taxes when filing.
❌ Difficult to Track – Frequent withdrawals make it harder to predict how much tax you’ll owe at the end of the year.
3. Bulk RRSP Withdrawal: Pros & Cons
Withdrawing a large amount all at once can be a convenient option, but it also comes with significant tax implications.
🔹 Benefits of Bulk Withdrawals
✅ One-Time Tax Withholding – Instead of multiple small deductions, the tax is withheld once upfront, making it easier to plan.
✅ Fewer Bank Fees – Some financial institutions charge per transaction, so a single withdrawal can save on fees.
✅ Simple to Manage – You know exactly how much you’ve withdrawn, making it easier to budget.
🔹 Drawbacks of Bulk Withdrawals
❌ Higher Immediate Tax Deduction – Withholding tax is based on the total withdrawal amount, meaning a higher percentage is taken compared to small withdrawals.
❌ May Push You Into a Higher Tax Bracket – Since the full amount is added to your taxable income, you could be taxed at a higher rate at year-end.
❌ Cannot Be Re-Contributed – Unlike a TFSA, once you withdraw from an RRSP, you lose that contribution room forever.
4. RRSP Withholding Tax Rates in Canada (2025)
When you withdraw from your RRSP, your financial institution automatically deducts withholding tax based on how much you take out:
- Up to $5,000 → 10% (5% in Quebec)
- $5,001 – $15,000 → 20% (10% in Quebec)
- Over $15,000 → 30% (15% in Quebec)
💡 Example:
- If you withdraw $4,000, the bank keeps $400 (10%) in tax.
- If you withdraw $20,000, the bank keeps $6,000 (30%) in tax.
⚠️ Important: These are just withholding rates. You may still owe more tax when filing your income tax return if your actual tax rate is higher!
5. How RRSP Withdrawals Impact Year-End Tax Filings
Since RRSP withdrawals are taxable income, they must be reported when filing your T1 General tax return. Here’s what happens:
1️⃣ The total amount withdrawn is added to your taxable income.
2️⃣ Your marginal tax rate determines the final tax owed.
3️⃣ If the withholding tax was too low, you’ll owe more at tax time.
4️⃣ If you withdrew too much, you could enter a higher tax bracket, paying more tax.
5️⃣ You won’t get a tax refund for RRSP withdrawals, unlike contributions that reduce taxable income.
💡 Example:
- If your total taxable income is $60,000 and you withdraw $10,000 from your RRSP, your new taxable income is $70,000.
- If your marginal tax rate is 25%, but only 20% was withheld at withdrawal, you may still owe the extra 5% in taxes.
6. Best Strategies to Minimize RRSP Withdrawal Taxes
✔️ Withdraw in Low-Income Years – If your income is lower (e.g., during retirement or unemployment), withdrawals will be taxed at a lower rate.
✔️ Use TFSAs for Regular Withdrawals – Since TFSA withdrawals are tax-free, prioritize withdrawing from a TFSA instead of an RRSP.
✔️ Plan Withdrawals in Advance – Splitting withdrawals over multiple years may reduce total tax owed.
✔️ Convert to a RRIF After 71 – Instead of withdrawing a lump sum, convert your RRSP to a Registered Retirement Income Fund (RRIF) to spread payments over time.
Final Thoughts: Should You Withdraw RRSP Daily or in Bulk?
Daily RRSP withdrawals can help avoid large tax hits at once, but tracking multiple withdrawals can be complex. On the other hand, a bulk withdrawal simplifies things but risks higher tax rates at year-end.
The best strategy depends on:
✔️ Your current income level
✔️ How much tax you want withheld upfront
✔️ Whether you need flexible withdrawals or a one-time payout
Understanding withholding tax, taxable income impacts, and end-of-year tax obligations will help you make a smart financial decision when withdrawing from your RRSP in 2025 and beyond.
