The RRSP meltdown: drawing your RRSP down early to pay less tax

What an RRSP meltdown is

Every dollar in an RRSP will be taxed as income eventually: when you withdraw it, when it comes out of a RRIF, or on your final tax return when you die. A meltdown doesn't avoid that tax. It chooses when you pay it, so more of it is paid at low rates.

In practice you withdraw a planned amount each year, starting when your income drops, often at retirement and before CPP and OAS begin. You can withdraw from an RRSP at any age, or convert part of it to a RRIF and set the payment yourself.

You may also see "leveraged" RRSP meltdowns, which borrow to invest and use the interest deduction to offset withdrawals. That's a different, riskier strategy, and this guide doesn't cover it.

Why waiting can cost you

• RRIF minimums rise every year. From 72 you must withdraw at least 5.40% of the balance, rising to 20% at 95 (see the RRIF minimum table). On a large RRIF, that plus CPP and OAS can put you in a higher bracket than you were ever in while working.
• The OAS clawback. Above $95,323 of net income in 2026, you repay 15% of the excess from your OAS, on top of income tax (see how the OAS clawback works).
• The age amount. The federal age credit for 65 and over shrinks by 15% of your income above $46,432, which quietly raises the tax on every extra dollar in that range.
• Tax at death. Unless it goes to a spouse or partner, whatever is left in your RRSP or RRIF is counted as income on your final return, all in one year. In Ontario, a $300,000 balance loses about 44% of its value that way.

A worked example

A single Ontario retiree stops working at 60 with $1 million in an RRSP. From 65 they get $12,000 a year of CPP and the full OAS ($9,150 a year). Their investments earn 3% a year above inflation, and they live on other savings when they don't need RRSP money.

• Wait: leave the RRSP untouched until RRIF minimums start at 72, then take only the minimum.
• Meltdown: withdraw enough each year from 60 to 71 to bring total income to $58,523 ($58,523 a year before 65, about $37,400 a year from 65 alongside CPP and OAS), then take the minimum. Anything not spent goes into a TFSA.

With $1 million, melting down is worth about $84,000 more after tax in today's dollars. Waiting means RRIF withdrawals of about $77,000 at 72, which with CPP and OAS takes income past the clawback threshold for 14 years, and a large balance taxed at death. With $600,000 the gain is smaller, about $43,000, mostly from lower tax rates and a smaller estate tax bill.

Simply withdrawing the same amount every year from 60 to 95 does about as well as the bracket-filling approach in this example. The big cost comes from doing nothing until 72.

How much to withdraw each year

Fill a low bracket

The usual approach is to withdraw enough to bring your total taxable income to the top of a low bracket. For 2026, the lowest federal bracket ends at $58,523, where the federal rate rises from 14% to 20.5%. Provincial brackets differ; Ontario's lowest ends at $53,891.

Count your other income

Subtract CPP, OAS, any workplace pension and taxable investment income from your target. Once CPP and OAS start, the room left for RRSP withdrawals shrinks.

Use a RRIF from 65

From 65, RRIF withdrawals (but not RRSP withdrawals) count for the $2,000 pension income credit and can be split with a spouse on your tax returns. Converting part of your RRSP to a RRIF at 65 unlocks both.

Expect withholding

Your financial institution withholds tax on RRSP withdrawals: 10% up to $5,000, 20% from $5,001 to $15,000 and 30% above that (lower federal rates plus provincial tax in Quebec). If your actual tax is lower, you get the difference back when you file. A RRIF payment of the minimum has no withholding.

Who it helps, and who it doesn't

A meltdown tends to help most if you:

• are single or widowed, so there's no spouse to roll the RRSP to at death and no one to split income with
• retire before 65, leaving years of low income before CPP and OAS
• have a large RRSP or a defined benefit pension that will keep your income high later
• delay CPP or OAS to 70 and need income to live on in the meantime

It helps less, or not at all, if you:

• have a small RRSP and expect low income throughout retirement. You may qualify for the Guaranteed Income Supplement, where every RRIF dollar after 65 reduces it but TFSA withdrawals don't; drawing RRSP money in your early 60s, before GIS is assessed, can help here
• are still working with a high income: withdrawals would be taxed at your top rate
• have a spouse with a much lower income: pension splitting and the spousal rollover at death already do much of the work

Common questions