RRSP withdrawal tax: withholding rates, the real tax and how to cut it

RRSP withdrawal tax: withholding now, the real tax at filing time

An RRSP withdrawal is taxed twice over in timing but only once in amount: your bank withholds 10%, 20% or 30% when you take the money out, and the whole withdrawal is then added to your income and taxed at your marginal tax rate on your return. According to the Canada Revenue Agency (CRA), the tax withheld "may not always be enough" to cover the tax you owe, so you may pay more when you file.

The withholding is a prepayment, not a penalty. On your return, you report the withdrawal on line 12900 and claim the tax withheld (box 30 of your T4RSP slip) on line 43700, according to the CRA. If the withholding was more than the real tax, you get the difference back; if it was less, you owe the difference.

See the withholding and the likely extra tax on your own withdrawal with the RRSP and RRIF withdrawal tax calculator.

RRSP withholding tax rates for 2026

RRSP withholding tax is 10% on withdrawals up to $5,000, 20% on withdrawals over $5,000 up to $15,000, and 30% on withdrawals over $15,000 for residents of Canada outside Quebec, according to the CRA. The rate applies to the whole withdrawal, not in bands, so a $6,000 withdrawal has $1,200 withheld.

Quebec residents have a lower federal rate (5%, 10% or 15%) because Quebec tax is withheld as well. According to Revenu Québec, RRSP issuers withhold Quebec income tax at 14% on single payments from an RRSP, so the combined rate on a large withdrawal is 29%.

No tax is withheld on Home Buyers' Plan withdrawals up to $60,000, Lifelong Learning Plan withdrawals, direct transfers to another RRSP or a RRIF, or the minimum amount paid from a RRIF.

Worked example: $20,000 out of an RRSP on a $50,000 salary in Ontario

Someone in Ontario earning $50,000 in 2026 who withdraws $20,000 from an RRSP has $6,000 withheld but owes only about $5,167.18 of extra income tax, so they get about $832.82 back when they file. These figures come from RightSums's Canada income tax engine, run on 28 September 2026, with basic credits only.

The extra tax is less than 30% because the first part of the withdrawal is taxed in lower brackets. Adding $20,000 lifts taxable income from about $49,500 to $69,535, crossing Ontario's 9.15% bracket at $53,891 and the federal 20.5% bracket at $58,523, which takes the marginal rate on the last dollar to 28.1%.

Smaller withdrawals often go the other way. At the same salary, a $5,000 withdrawal has $500 withheld at 10% but adds $978.90 of tax, leaving $478.90 to pay by 30 April 2027. At a $100,000 salary, a $20,000 withdrawal adds $6,863.36 of tax against $6,000 withheld, so $863.36 is due. Try your own figures with the Canada income tax calculator, or compare provinces on the Ontario income tax page.

In Quebec, the same $20,000 on a $50,000 salary has $5,800 withheld ($3,000 federal at 15% plus $2,800 Quebec at 14%), while the engine puts the extra federal and Quebec tax at $6,422.67, leaving about $622.67 to pay.

Splitting a withdrawal into small pieces cuts withholding, not tax

Taking $20,000 as four $5,000 withdrawals lowers the tax withheld from $6,000 to $2,000, but it does not change the tax you owe for the year. The full $20,000 is still added to your income, so the $4,000 you did not prepay becomes a balance owing in April.

The CRA also limits the trick. In its RRSP and RRIF guidance for plan issuers, it says that where "a series of requests are made in a short period of time" to reduce withholding, the rate should be set as if there were one request for the total. Your bank may therefore withhold 30% anyway.

If you do take small amounts, set aside the difference between the withholding and your marginal rate. The CRA's payment due date is 30 April, so tax owed on a 2026 withdrawal is due by 30 April 2027, with interest charged after that.

You lose the RRSP contribution room for good

An RRSP withdrawal does not give back the contribution room you used, unlike a TFSA. According to the CRA, your RRSP deduction limit is your unused room from the previous year plus 18% of the previous year's earned income up to the annual limit ($33,810 for 2026), less any pension adjustment. Withdrawals do not appear anywhere in that formula.

So a $20,000 withdrawal at 40 removes $20,000 of tax-sheltered saving permanently, together with its future tax-free growth. If you are choosing which account to draw on in an emergency, a TFSA withdrawal is added back to your room on 1 January of the following year; check your room with the TFSA calculator.

The two exceptions are the Home Buyers' Plan and the Lifelong Learning Plan, where you repay the money into your RRSP. According to the CRA, HBP repayments do not affect your RRSP deduction limit.

Home Buyers' Plan: up to $60,000 tax-free, repaid over 15 years

The Home Buyers' Plan (HBP) lets a first-time buyer take up to $60,000 out of their RRSPs to buy or build a qualifying home with no tax withheld and no tax due, as long as it is repaid. According to the CRA, you must have a written agreement to buy or build the home, be resident in Canada, and intend to live in it within one year.

Repayments run over 15 years. According to the CRA, first withdrawals made from 1 January 2026 to 31 December 2028 get extended relief: repayments start in the fifth year after the year of the first withdrawal, so a 2026 withdrawal is first repaid in 2031. The same relief already applied to first withdrawals from 2022 to 2025.

The minimum yearly repayment is your HBP balance divided by the years left. A $60,000 withdrawal therefore needs $4,000 a year ($60,000 / 15). Any shortfall is added to your income on line 12900 for that year and taxed at your marginal rate, according to the CRA. You can use the HBP alongside a qualifying withdrawal from a first home savings account (FHSA) for the same home.

Lifelong Learning Plan: up to $10,000 a year for full-time study

The Lifelong Learning Plan (LLP) lets you withdraw up to $10,000 in a calendar year and $20,000 in total from your RRSPs to pay for full-time training or education for you or your spouse or common-law partner, with no tax withheld and nothing added to your income. According to the CRA, the withdrawal "is not limited to the amount of tuition or other education expenses", so it can also cover rent or living costs while you study. You cannot use the LLP for your children's education.

According to the CRA, the LLP has five main conditions:

• You are resident in Canada when you withdraw, and you cannot join the plan after the end of the year you turn 71.
• The student (you or your spouse or common-law partner) is enrolled full-time in a qualifying educational program at a designated educational institution, or has a written offer to enrol before March of the year after the withdrawal. Part-time study qualifies only if the student meets the disability conditions.
• The money comes from an ordinary RRSP. Locked-in RRSPs cannot be used.
• You fill in Form RC96 for each withdrawal and give it to your RRSP issuer. The T4RSP slip shows the amount in box 25.
• You can keep withdrawing until January of the fourth calendar year after your first LLP withdrawal, as long as the student still qualifies.

Going over the limits makes the excess taxable. According to the CRA, an amount above the $10,000 yearly limit is added to your income for the year of the withdrawal, and an amount above the $20,000 total is added to your income for the year you exceed it. Your spouse or common-law partner can also withdraw up to $10,000 from their own RRSPs in the same year.

Repaying the LLP over 10 years

LLP withdrawals are repaid to your RRSP over 10 years, generally 1/10 of the total each year, according to the CRA. Repayments start in the second of two years in a row in which the student is not a qualifying student for at least 3 months, and no later than the fifth year after your first withdrawal. For a first withdrawal in 2026, the latest start is 2031.

A repayment is a contribution made in the repayment year or the first 60 days of the next year and designated on Schedule 7 of your return. It is not deductible, and you can make it even if your RRSP deduction limit is zero. Any part of the required repayment you do not make is added to your income on line 12900.

For example, $20,000 withdrawn under the LLP needs $2,000 a year for 10 years. If you designate only $500 in one year, $1,500 is added to your income. On a $50,000 salary in Ontario, that adds $285.75 of 2026 income tax on the RightSums engine, and the $1,500 comes off your LLP balance, according to the CRA, so it never goes back into your RRSP.

Two traps in the LLP rules

The first trap is a new contribution just before the withdrawal. According to the CRA, a contribution made in the 89 days before an LLP withdrawal may not be deductible at all, even if you repay it later: the non-deductible part is your contributions in that 89-day period minus the value left in the RRSP right after the withdrawal. The same page says a new RRSP cannot be opened and emptied under the LLP at once, because a contribution has to stay in the plan for 90 days before you can deduct it.

The second trap is leaving the course early. If the student leaves before April of the year after the withdrawal and 75% or more of the tuition is refundable, the CRA says you must cancel the LLP withdrawal; if you do not, the whole amount is added to your income for the year you withdrew it. If less than 75% is refundable, you can still repay over 10 years.

At 71 your RRSP must become a RRIF or an annuity

An RRSP must mature by the last day of the year you turn 71, according to the CRA's guide T4040. On maturity you must withdraw the money, transfer it to a registered retirement income fund (RRIF) or buy an annuity. Transfers to a RRIF or an annuity have no immediate tax; cashing out the whole RRSP puts the full amount into that year's income.

A RRIF then pays out a minimum each year, and according to the CRA, "no withholding is required on minimum amounts". Only amounts above the minimum have tax withheld at the 10%, 20% and 30% rates. The minimum is still taxable income, so it can leave a balance owing if you have other income.

Converting to a RRIF earlier, for example at 65, can smooth your taxable income over more years. Work out your RRIF minimum by age with the RRIF withdrawal calculator.

Spousal RRSPs: the 3-year attribution rule

A withdrawal from a spousal RRSP is taxed in the hands of the spouse who contributed if they paid into any spousal RRSP in the year of the withdrawal or the two years before. According to the CRA, to avoid this, the contributor must not have contributed "in the year your spouse or common-law partner withdraws the funds, or in either of the two preceding years".

For example, if you contributed to your spouse's RRSP in December 2024, a withdrawal your spouse makes in 2026 is taxed on your return, but a withdrawal in January 2027 is taxed on theirs. The annuitant uses Form T2205 to work out how much each of you reports. The tax withheld is claimed by the person named on the slip.

How to reduce the tax on an RRSP withdrawal

The main way to reduce RRSP withdrawal tax is to take the money in a year when your income is low. A $20,000 withdrawal with no other income adds only $604.84 of Ontario tax in 2026 on the RightSums engine, against $5,167.18 on top of a $50,000 salary.

• Low-income years: a sabbatical, parental leave, a gap between jobs or the years between retiring and starting CPP and OAS. Withdrawals then fill the lowest brackets.
• Spread large withdrawals over several tax years rather than one, so less of the money reaches a higher bracket.
• Use the HBP or LLP if the money is for a first home or education.
• Mind the OAS recovery tax once you are 65: withdrawals raise the net income used for the OAS clawback, which starts at $93,454 of 2025 income and $95,323 of 2026 income (an estimate until October 2026). Our OAS clawback guide shows the sums.
• Watch the GIS if your income is low: according to Service Canada, a single person's Guaranteed Income Supplement stops at $22,800 of annual income (July to September 2026 figures), and RRSP withdrawals count as income.
• Transfer instead of withdrawing when you only want to move money: a direct transfer to another RRSP or a RRIF is not a withdrawal, according to the CRA.

Non-residents pay 25% on RRSP withdrawals

A non-resident of Canada has 25% withheld on RRSP withdrawals, unless a tax treaty sets a lower rate, according to the CRA. The rate is flat, whatever the amount, and for most lump sums it is the final Canadian tax.

The country you now live in may also tax the withdrawal, and treaty relief depends on that country's rules. The CRA points to Information Circular IC76-12R8 for treaty rates. Check with the tax authority where you live before cashing in a large RRSP after leaving Canada.

What to do before you withdraw

Work out the real tax before you ask your bank for the money, because the withholding tells you little about what you will owe.

1. Put the withdrawal and your other income for the year into the withdrawal tax calculator to see the withholding and the extra tax side by side.
2. If the extra tax is higher than the withholding, save the difference for 30 April of next year.
3. Check whether a low-income year is coming, or whether the HBP or LLP fits.
4. If you plan to put money back later, remember the room is gone; see what a future contribution would save with the RRSP tax refund calculator.