RRSP Withholding Tax on Withdrawal: How Much Will You Pay?

What is RRSP withholding tax?

RRSP withholding tax is money withheld by your financial institution for tax purposes when you make an RRSP withdrawal.

Remember how you claimed a deduction on your income tax return when you put money into your RRSP? You effectively lowered your taxable income (and thus your taxes owing) for the year. But RRSP deductions are a tax deferral, not a tax dodge. When you take money back out of an RRSP, it's time to pay the piper. RRSP withdrawal amounts get added to your annual taxable income.

But the CRA isn't content to wait until you file your tax return to take a cut. When you make an RRSP withdrawal, your financial institution withholds a portion and sends it directly to the CRA, much like an employer deducting income tax from an employee's paycheque.

This prepayment of income taxes, however, is just an estimate—not your final tax bill. The amount withheld could be too much or not enough to account for the tax you actually owe in your tax bracket, which is based on your total annual taxable income.

“A lot of people see money held back and assume their taxes for the year are already sorted,” says Mark Sobieraj, a tax lead at TurboTax Canada. “But withholding taxes only cover a portion of your tax reality. The full picture doesn't come together until you file that year's tax return and account for all your combined income sources.”

How much will be withheld?

Federal withholding rates range from 10% to 30%. Your rate depends on the amount you withdraw from your RRSP and where you live. Canadian residents (excluding Quebec) pay the following federal rates: 

Withdrawal amount	Withholding rate
Up to $5,000	10%
$5,001 to $15,000	20%
Over $15,000	30%

Quebec residents have lower federal rates, but generally pay more overall due to an additional provincial withholding tax of 14%:

Withdrawal amount	Withholding rate
Up to $5,000	19% (5% federal + 14% provincial)
$5,001 to $15,000	24% (10% federal + 14% provincial)
Over $15,000	29% (15% federal + 14% provincial)

For non-residents of Canada, the withholding rate is generally 25%, unless the country you live in has a tax treaty with Canada that specifies a lower rate.

Withholding tax vs. your actual tax bill

It's worth repeating: withholding tax is just a deposit. At tax time, you'll report the RRSP withdrawal (using the T4RSP slip issued by your financial institution) along with all your other sources of income—which can include salary, bonuses, self-employment or gig work, taxable benefits, and non-registered investment earnings. 

If you've paid more in taxes than you owe, you'll get a refund. If you haven't paid enough, you'll owe the difference.

Why timing your withdrawal matters

Because Canada has a progressive income tax system in which the rate of tax goes up as portions of your income fall into progressively higher tax brackets, when you withdraw funds from your RRSP is just as important as how much.

“Taking money out during a low-income year—like a career break, early retirement, or a stretch of part-time work—means it gets taxed at a lower marginal rate,” says Sobieraj. “Pull the same amount during a high-income year and you could push yourself into a higher bracket, which would significantly increase the amount of tax you owe.”

Impact on RRSP contribution room

Here's where RRSP withdrawals really sting. Unlike a TFSA, where money you take out can be recontributed the following year, you never regain RRSP contribution room after withdrawals. 

Once it's gone, it's gone. That means losing not only a portion of your retirement savings, but also the years of tax-sheltered compounding it could have generated.

“Losing contribution room doesn't always hurt right away, but it adds up in ways people don't anticipate until much later,” says Sobieraj.

When RRSP withdrawals can be tax free

Two federal programs let you borrow from your RRSP without triggering withholding or income tax, and you won't lose your contribution room—so long as you repay on schedule. (Unpaid amounts or missed payments are added on to your annual income and taxed at your marginal rate.)  

•     Home Buyers' Plan (HBP): First-time home buyers can withdraw up to $60,000 from their RRSP toward a qualifying home purchase. Repayments generally begin 2 years after the first withdrawal and must be completed within the following 15 years. If you made your first withdrawal between January 1, 2022, and December 31, 2025, you're eligible for temporary repayment relief: you can defer the start of your repayment period by an additional 3 years. (For example, if your first withdrawal was in 2025, your first year of repayment will be 2030.)

•     Lifelong Learning Plan (LLP): You can withdraw up to $10,000 a year (to a lifetime maximum of $20,000, over four consecutive years) from your RRSP to help pay for eligible full-time education or training for yourself or your spouse or common-law partner. Repayments generally begin within 5 years of the first withdrawal and must be completed during the following 10 years.

What's the difference between RRSP and RRIF withdrawals?

By the end of the year that you turn 71, you must either convert your RRSP to a Registered Retirement Income Fund (RRIF), use it to purchase an annuity, or cash it out entirely. Most Canadians choose the RRIF.

Like RRSP withdrawals, RRIF withdrawals are taxable income. The key difference, however, is that the withdrawals aren't optional. 

Starting the year after you've converted your savings to an RRIF, you're required to withdraw a minimum amount each year, calculated based on your (or your spouse's) age and account balance. 

Note that there are different guidelines for withholding tax on RRIF withdrawals than on RRSP withdrawals, but both types of withdrawals are fully taxable as income. 

RRSP withdrawals: Easy to make, hard to undo

Making an RRSP withdrawal is simple. Making up for lost contribution room and tax-sheltered compounding earnings, not so much. So, before you withdraw from your RRSP, make sure you understand the full picture, including income taxes, not just the amount withheld upfront.