How to withdraw your RRSP funds without paying extra tax

Withdrawing funds from a Registered Retirement Savings Plan (RRSP) can affect an account holder’s taxes, retirement income, and long-term savings goals. While RRSPs are meant to support you in retirement, some might need to access these funds earlier. This can happen for many reasons, like making a down payment or covering unexpected expenses. 

In this article, Wealth Professional Canada will explore what happens when you withdraw your RRSP funds. We’ll cover when it might make sense to do so as well as how the process works. We’ll look at the tax treatment and planning steps that can help reduce costs and preserve retirement savings. We’ll also outline what you should do when you’re required to withdraw RRSP funds at maturity. 

To our usual pool of readers who are wealth professionals, this article is part of our client education pieces. Feel free to share it if you have clients who are interested! 

Is it possible to withdraw money from RRSP? 

Short answer: yes. You can withdraw your funds from your RRSP accounts any time you want, as long as you’re not under a lock-in plan. Otherwise, the withdrawal could be subject to withholding tax. Plus, the amount to be withdrawn must be included as your income when filing your taxes. 

Watch this video to learn more about withdrawing RRSP funds: 

For a quick backgrounder, here’s everything you need to know about RRSPs. 

Can I cash out my RRSP before retirement? 

Yes, you can use your RRSP funds if you need the money for urgent or unexpected expenses. However, you will be paying an immediate tax on your withdrawals. You can also lose your contribution room permanently. 

What this means is that you cannot reinvest or put back the money you withdrew into your RRSP and regain the associated tax benefits. 

How much tax do I pay if I withdraw from my RRSP? 

It depends on how much is withdrawn and where you live. In most parts of the country, withholding tax rates are: 

• 10 percent on amounts up to $5,000 
• 20 percent on amounts over $5,000 up to $15,000 
• 30 percent on amounts over $15,000 

In Québec, provincial tax is also withheld along with these tax rates: 

• five percent on amounts up to $5,000 
• 10 percent on amounts over $5,000 up to $15,000 
• 15 percent on amounts over $15,000 

As for non-residents, they are subject to a 25 percent withholding tax on their RRSP withdrawals, unless reduced by a treaty. However, some exceptions apply. 

How to withdraw your RRSP funds without paying taxes 

Withdrawals under these two programs will not be taxed: 

1. Home Buyers’ Plan 
2. Lifelong Learning Plan 

Let's discuss both options below: 

1. Home Buyers’ Plan 

The Home Buyers’ Plan (HBP) allows you to withdraw RRSP funds to buy or build a qualifying home for you or for a related person with a disability. To initiate the process, you must complete Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP. 

A separate form is required for each withdrawal. In Area 1, you provide the withdrawal details and personal information. The completed form is then given to the RRSP issuer, who fills out Area 2. 

Deduction rules 

You should also be aware of the RRSP deduction rules that apply to contributions made shortly before an HBP withdrawal. Contributions made in the 89-day period before the withdrawal might not be fully deductible if your total exceeds the fair market value of the RRSP after the withdrawal. 

This rule applies equally to contributions made to a spouse’s or common-law partner’s RRSP before they make a withdrawal under the HBP. For contributions during this period to be fully deductible, the RRSP’s post-withdrawal value must be at least equal to the contributions. 

The Canada Revenue Agency (CRA) provides a calculation to determine any non-deductible portion for the year. 

Withdrawal limits 

You can make more than one withdrawal under the HBP. However, all withdrawals must take place in the same calendar year as the first withdrawal and in January of the following year. The withdrawal limit is $60,000 in total, an increase from the previous $35,000 limit for withdrawals made after April 16, 2024. 

If you withdraw your RRSP funds and stay within this limit, no tax will be withheld. Any amount above $60,000 must be reported as income for that year, and the RRSP issuer will withhold tax on the excess amount at the time of withdrawal. Watch this video to know more about the Home Buyers’ Plan (HBP) and how you can maximize it: 

The HBP can be combined with spousal RRSP contributions. This can provide more flexibility in planning the home purchase and potentially reduce the tax impact when the funds are withdrawn and repaid. 

2. Lifelong Learning Plan 

In need of funds to pay for education or training for yourself, your spouse, or your common-law partner? The LLP offers a way to withdraw your RRSP funds without immediate tax withholding. The process begins with Form RC96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP. This must be completed for each withdrawal. 

In Part 1, you will designate the LLP student. This can be you or your spouse or partner. Once Part 1 is complete, the form is given to the RRSP issuer, who fills out Part 2. If the conditions are met, the issuer will process the withdrawal without withholding tax and issue a T4RSP slip showing the amount withdrawn in box 25. 

This slip must be attached to your income tax and benefit return. 

Tax filing requirements 

From the first year a withdrawal is made, you must file an income tax and benefit return annually until the full LLP balance is repaid or the remaining amount is included in income. This filing requirement applies even if no tax is owed or no repayment is made in a given year. 

You need to make sure that Schedule 7 is completed to report withdrawals or repayments, and that Box 26400 is ticked if the spouse or partner is the student. The designated student must remain the same if withdrawals span multiple years. 

Withdrawal limits 

Keep these limits in mind when you withdraw your RRSP funds: 

• up to $10,000 can be withdrawn in a calendar year 
• the total LLP limit is $20,000 for each participation period 
• your spouse or partner can also withdraw up to $10,000 in the same year 
• amounts over the $10,000 annual or $20,000 total limit will be included in your income for that year 

You can use the LLP again after your LLP balance reaches zero, starting in the following year. Careful planning helps avoid excess withdrawals and unexpected taxes. 

Check out this clip to better understand how the LLP works and how you can leverage it: 

Either of these options will allow you to access your RRSP savings temporarily without immediate tax. However, repayments must be made on time, so be sure to take note of that. 

Other tax efficient ways to withdraw your RRSP funds 

Tax payments are almost always attached to RRSP withdrawals. However, there are tax-efficient withdrawal strategies that can help you keep more of your savings. 

Check out some of them below: 

Retire in a lower tax bracket 

If you can begin withdrawals in years when your total income is lower, you might pay less tax. This can be in early retirement before Canada Pension Plan (CPP) or Old Age Security (OAS) starts. Timing withdrawals during these low-income years can be an effective way to reduce your tax burden. 

Spread withdrawals over time 

Instead of taking a large lump sum in one year, staggered withdrawals can help keep you in a lower marginal tax bracket. This approach spreads the income and the tax across multiple years. 

Use spousal strategies for income splitting 

You can contribute to a spousal RRSP to shift taxable withdrawals to a lower-income spouse in retirement, following attribution rules. Once an RRSP is converted to a Registered Retirement Income Fund (RRIF) or annuity, eligible pension income can also be split between spouses to reduce the combined tax bill. 

Draw on non-registered investments first 

If you have non-registered investments such as stocks, bonds, or mutual funds, you can use that income to meet spending needs in some years. This can let you delay withdrawing your RRSP funds until it’s a better tax time to take them. 

Coordinate withdrawals with investment planning 

Diversifying across registered, non-registered, and tax-free accounts gives more flexibility in deciding when and how much to withdraw from an RRSP. This flexibility allows your withdrawals to be timed and sized in a way that minimizes tax over the long term. 

Mandatory RRSP withdrawals at maturity 

An RRSP reaches maturity on the last day of the calendar year in which an account holder turns 71. At that point, the funds can no longer stay in the RRSP. You must then choose how to access the money. There are three main choices, each with different tax effects: 

Option 1: Take all the money at once 

You can choose to withdraw the full RRSP balance in a single payment. The RRSP issuer will apply withholding tax immediately on the amount withdrawn and send it to the government. 

The entire withdrawal must also be reported as income for that year. This could push you into a higher tax bracket. 

Option 2: Turn the RRSP into RRIF 

The RRSP can be converted into a Registered Retirement Income Fund (RRIF). With this option, you need to make annual minimum withdrawals. These are included in your taxable income. 

No withholding tax is applied to the minimum amount, but any extra withdrawal above the minimum will have withholding tax applied. Plus, if the investment return is lower than the withdrawal rate, the RRIF could run out over time. 

Option 3: Buy an annuity 

Lastly, the RRSP can be used to buy an annuity. This pays a guaranteed income for life or for a set period. There’s also no withholding tax when buying the annuity. However, payments from the annuity are taxable as income when received. 

Making RRSP withdrawals work for you 

Withdrawing your RRSP funds is a decision that should be made with careful planning. As we’ve discussed above, each withdrawal option has its own process and tax implications. Asking your financial advisor for guidance in understanding these choices can prevent costly mistakes and protect your savings. 

When RRSP withdrawals are timed strategically or used with available programs like the HBP and LLP, you can reduce the tax impact and manage your cash flow wisely. Planning ahead can help you use your RRSP in a way that supports your goals—so you get the most from your hard-earned savings now and in the future. 

To know more about RRSPs and other insights on investing for retirement, read and bookmark our Retirement Solutions page for more information.