All About Estates

RRSP’s and Early Withdrawals.

Registered retirement savings plans (RRSP’s), introduced in 1965 by the way, are a great vehicle for retirement savings and a keystone found in most retirement and estate plans. It is one of the few ways to earn an income-tax reduction in your earning years (the amount you contribute is tax deductible). Income tax is paid on RRSP money when it is withdrawn, when you are likely in a lower-tax bracket.

Traditionally, most folks would contribute to their RRSPs’ every year until age 71, when they must turn an RRSP into either a registered retirement income fund (“RRIF”) or an annuity. Early withdrawals were considered punitive (and discouraged) under the general assumption that when doing so, the individual withdrawing the amount was in a high tax paying bracket when making the withdrawal.

But the times they are changing!

These days, folks are taking early retirement for health and/or other reasons, often without pension plans and may not have another sources of taxable income except maybe CPP benefits and/or OAS income until they turn 71 when their RRSPs are converted to RRIF’s.  In these instances, it would make sense to make some RRSP withdrawals in these low taxable income years, as the tax savings can be substantial.

I understand a strategy which is becoming more common for folks over 65 in the circumstances above is to convert an appropriate amount of RRSP into a RRIF when they become eligible to apply $2,000 of eligible annual retirement income toward the federal pension credit, plus the appropriate provincial credits, and then use some of the money if they can to eliminate some debt or other obligations, all in a lower tax environment.

To stretch the point a bit, an argument could be made for early withdrawals if someone is not expected to have a very long life expectancy to help cover immediate medical and other expenses.

Early on, I was trained to think early RRSP withdrawals was a no-no. I can see now that sort of thinking does not apply to all and in fact not the most tax effective way to manage one’s affairs leading up to age 71.

Happy Reading

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.


  1. Christina Parfitt, CFP

    March 27, 2018 - 1:12 pm

    Further to this, a new charitable giving strategy that is gaining traction is using the T1213 form to make a withdrawal from an RRSP without withholding taxes. Donors with large retirement savings are using this approach to make in-life gifts in a way that will help reduce their tax burden for when they mature their RRSPs to RRIFs.

  2. Jill Bone

    March 27, 2018 - 4:04 pm

    Many times, when reviewing assets and discovering a fair sized RIF, clients are aghast at the potential tax due on a T1D. I often have to remind them that they received a taxable benefit when the money went in and over the years in retirement when (hopefully) they’ve been in a lower income tax bracket. Grudgingly they acknowledge the point.

  3. William Eamer

    March 27, 2018 - 9:54 pm

    Rather than capitalizing/endowing an RRIF with an “appropriate” (i.e., estimated) amount, simply transfer the desired annual amount from the RRSP to the RRIF and then withdraw the funds to constitute an income amount. No need to guess the future rate of return.

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