When Should You Start Withdrawing from Your TFSA vs RRSP?
(Six-minute read time)
Saving for retirement is only half the challenge. Eventually, you'll need to decide when to start using those savings; and the timing can have a significant impact on your taxes, government benefits, and how long your money lasts.
Many Canadians assume the answer is simple: leave the RRSP untouched for as long as possible and spend the TFSA first because it's tax-free. In reality, that strategy isn't always the most tax-efficient.
This guide explains when TFSA and RRSP withdrawals often make sense, the factors that influence the decision, and why timing matters just as much as withdrawal order.
TL;DR – When Should You Withdraw from Your TFSA or RRSP?
If you want the short version:
RRSP withdrawals may make sense during years when your taxable income is relatively low.
TFSA withdrawals generally don't affect your tax bracket or government benefits.
Waiting until mandatory RRIF withdrawals can increase future tax pressure.
Withdrawal timing often matters just as much as withdrawal order.
Many retirees benefit from using both accounts strategically rather than relying heavily on one.
Interested in Building Wealth?
Reach out to WealthTrack today!
Tax Bracket Timing: When Should You Start RRSP Withdrawals?
One of the biggest misconceptions in retirement planning is that RRSP withdrawals should always be delayed for as long as possible. In reality, the years immediately after retirement can sometimes be among the lowest-income years of your life. You may have stopped working but haven't started CPP, OAS, or mandatory RRIF withdrawals yet. Those years can create an opportunity.
Making modest RRSP withdrawals while you're in a lower tax bracket may reduce the size of your RRSP before mandatory withdrawals begin later in retirement. That can help smooth your taxable income over many years instead of creating larger withdrawals later.
The objective is reducing the amount of tax you pay over your entire retirement. Sometimes paying a little tax earlier helps avoid paying much more later.
Early RRSP Withdrawals Before RRIF Conversion
Many Canadians don't realize that an RRSP cannot remain an RRSP forever. By the end of the year you turn 71, your RRSP must be converted into a Registered Retirement Income Fund (RRIF) or another eligible retirement income option.
RRIF requires you to withdraw at least a minimum amount every year. Those withdrawals are fully taxable. If your RRSP has continued growing for decades without withdrawals, the required RRIF payments may become much larger than you actually need.
This is one reason many retirees begin withdrawing smaller amounts from their RRSP several years before RRIF conversion. Reducing the account gradually can lower future mandatory withdrawals and create more consistent taxable income throughout retirement.
How TFSA Withdrawals Affect Taxes and Government Benefits
The TFSA provides flexibility that no other registered account offers. Withdrawals are generally tax-free and don't increase your taxable income. That means TFSA withdrawals typically don't affect:
Old Age Security (OAS)
Guaranteed Income Supplement (GIS)
Your income tax bracket
Because of this flexibility, many retirees use their TFSA to supplement income during years when they want to avoid increasing taxable income.
For retirees with sufficient RRSP income, preserving TFSA assets longer may create more tax-free income later in retirement, since money left inside a TFSA grows tax-free.
Wondering When You Should Start RRSP Withdrawals?
The timing of your withdrawals can affect taxes, government benefits, and how long your retirement savings last.
A retirement income review can help determine the most tax-efficient withdrawal timeline based on your goals.
100% Free - No Obligation - Personalized Advice
How TFSA and RRSP Withdrawals Affect OAS and GIS
Government benefits are another reason withdrawal timing matters. Old Age Security (OAS) provides retirement income for many Canadians beginning at age 65, while the Guaranteed Income Supplement (GIS) offers additional support to lower-income retirees.
Here's where the difference between RRSPs and TFSAs becomes important:
RRSP and RRIF withdrawals are considered taxable income.
TFSA withdrawals generally are not.
If large RRSP or RRIF withdrawals occur after you've begun receiving government benefits, your taxable income may increase enough to reduce those benefits. For higher-income retirees, this may trigger the OAS recovery tax, commonly known as the OAS clawback. For lower-income retirees, additional taxable income may reduce GIS eligibility.
The timing of RRSP withdrawals should be coordinated with your overall retirement income. Many retirees intentionally spread RRSP withdrawals across several years before mandatory RRIF withdrawals begin, helping create a smoother income stream while reducing the likelihood of large taxable spikes later in retirement.
The takeaway: Government benefits are part of your retirement income strategy. The timing of RRSP withdrawals can influence how much of those benefits you ultimately keep.
Scenario: Same Retirement Savings, Different Withdrawal Timing
David and Lisa both retire at age 63.
Each has:
$700,000 in RRSPs
$175,000 in TFSAs
Similar investment returns
Comparable retirement spending needs
David Waits
David decides not to touch his RRSP until mandatory RRIF withdrawals begin. Throughout his 60s, he relies primarily on his TFSA to fund retirement expenses.
By age 72, his RRSP has continued growing for nearly a decade and his mandatory RRIF withdrawals are substantially larger.
Result
Larger mandatory RRIF withdrawals
Greater risk of reducing OAS benefits (OAS clawback)
Smaller TFSA available for future tax-free income
Less flexibility to manage taxes later in retirement
Lisa Starts Earlier
Before retiring, Lisa works with a financial advisor to map out a withdrawal strategy. Between ages 63 and 71, she withdraws modest amounts from her RRSP while her taxable income remains relatively low. She supplements that income with occasional TFSA withdrawals, allowing much of her TFSA to continue growing tax-free.
By the time her RRSP converts to a RRIF, the balance is smaller and the required withdrawals are lower.
Result
Lower mandatory RRIF withdrawals
More consistent taxable income
Reduced pressure on OAS benefits
Larger TFSA available for future tax-free withdrawals when needed
The Takeaway
Neither retiree withdrew more money overall. The difference was when they chose to withdraw it.
Small changes in timing can influence taxes, government benefits, and financial flexibility throughout retirement.
When Does It Make Sense to Withdraw from Your TFSA vs. RRSP?
There isn't a universal withdrawal order that works for everyone. Instead, each account serves a different purpose throughout retirement.
RRSP withdrawals often make sense when:
You're in a relatively low tax bracket.
You haven't yet started CPP or OAS.
You want to reduce future RRIF withdrawals.
You're balancing out taxable income over multiple years.
TFSA withdrawals often make sense when:
You want tax-free income.
You're trying to stay below important tax thresholds.
You want to avoid increasing taxable income that could affect OAS or GIS.
You need flexibility for unexpected expenses or larger purchases.
The strongest retirement plans coordinate both accounts so each is used when it provides the greatest long-term benefit.
Get Professional Advice
Hello, I’m David Pipe. At WealthTrack, we can help you reach your financial goals — book a free 15-minute call with us today to find out how to get started.
Final Word: Timing Can Be Just as Important as the Withdrawal Amount
Retirement income planning isn't only about deciding which account to withdraw from. It's also about deciding when each account should be used. Starting RRSP withdrawals too late can create unnecessary tax pressure. Using TFSA savings too early may reduce future tax-free growth.
The strongest retirement plans look beyond the current year and consider how today's withdrawal decisions affect the next 20 or 30 years.
Next Step: Retirement Income Timing Review
Not sure when you should begin withdrawing from your RRSP or TFSA?
A retirement income review can help you:
Estimate the most tax-efficient withdrawal timeline
Reduce future tax pressure
Evaluate OAS and GIS implications
Build a retirement income plan that fits your goals
Find out when your retirement savings should begin working for you; not just how much you've saved.
100% Free - No Obligation - Personalized Advice
Interested in Building Wealth? Reach out Today!
Recognized By
Interested in Learning More About Investing?
Check out our additional resources:
Wondering when to withdraw from your TFSA or RRSP in retirement? Learn how timing affects taxes, OAS benefits, and your long-term retirement income strategy in Canada.