How to Structure Withdrawals from RRSP, TFSA, and Non-Registered Accounts Together

How to Structure Withdrawals from RRSP, TFSA, and Non-Registered Accounts Together

Most Canadians spend decades building up savings across three different buckets — an RRSP, a TFSA, and a non-registered account. Getting money into those accounts is one challenge. Getting it out in the right order is another one entirely. The sequence and timing of withdrawals can mean tens of thousands of dollars in tax savings over a retirement, yet it's one of the least-discussed parts of retirement planning. Here's a plain-English look at how the three accounts work together and what you should be thinking about before you start drawing down.

Why the Order of Withdrawals Matters

Each account type is taxed differently, and that difference is what makes the sequencing decision so important.

RRSP and RRIF withdrawals are taxed as ordinary income — dollar for dollar, at your marginal rate — just like employment income. Non-registered accounts are more nuanced: interest income is fully taxable, but capital gains are only 50% included in your income, and eligible Canadian dividends come with a dividend tax credit. TFSA withdrawals, on the other hand, are completely tax-free and don't appear on your tax return at all.

Because these rules are so different, the account you pull from in any given year directly shapes how much tax you pay that year and in future years. Pull too much from your RRSP early in retirement and you may push yourself into a higher bracket. Pull nothing from it for years and you'll face a very large forced RRIF minimum later. The goal is to spread income across your retirement years as evenly as possible, staying in lower tax brackets for as long as you can.

The Role of Your Non-Registered Account

Many retirees assume the TFSA should come last because it's tax-free, so they spend down the non-registered account first. That logic has merit — but it's not the full picture.

Non-registered accounts are often a good early source of funds because the capital gains inclusion rules make withdrawals relatively tax-efficient compared to RRSP draws. If you're selling investments that have grown modestly, you may only be adding a small amount to your taxable income. You can also choose which investments to sell — holding positions with unrealized gains a little longer while selling others to manage your annual income.

The key is to monitor what type of income each withdrawal generates, because interest-bearing investments in a non-registered account are the least tax-efficient source and should generally be considered early for repositioning.

Strategic RRSP Drawdown Before Age 71

One of the most overlooked opportunities in Canadian retirement planning is the window between when you stop working and when you turn 71. If your employment income drops to zero or near-zero, your RRSP withdrawals may land in a very low tax bracket.

Drawing deliberately from your RRSP during these years — even before you technically need the money — can reduce the eventual size of your RRIF and shrink future mandatory minimums. It can also preserve GIS eligibility later in life and reduce the risk of OAS clawbacks for people with larger registered balances.

The key is that you don't have to wait for the government to force withdrawals. Proactively managing the RRSP balance during low-income years gives you more control than you might expect.

When the TFSA Does the Heavy Lifting

The TFSA earns its keep when your income in a particular year is already high — for example, a year with a large capital gain, a one-time inheritance, or simply a year where RRIF minimums push you into a higher bracket. In those situations, using TFSA withdrawals instead of adding more taxable income from another source can keep your tax bill flat.

The TFSA is also uniquely useful for retirees receiving the Guaranteed Income Supplement. Because TFSA income is invisible to the CRA for GIS purposes, it allows lower-income retirees to supplement their cash flow without reducing their benefit entitlement.

The flexibility the TFSA provides is part of why leaving a meaningful balance in it — rather than spending it first — can pay off significantly over a long retirement.

Getting This Right Takes a Plan

These strategies don't operate in isolation. The optimal withdrawal sequence depends on your total income from all sources — CPP, OAS, rental income, part-time work, pension, and investment returns — along with your marginal tax rates now and in the future, your spouse's income if applicable, and your estate goals.

Marc Pineault, a retirement planner in London, Ontario, works with clients to map out exactly this kind of multi-account drawdown strategy. The goal is always to help you keep more of what you've saved by being intentional about which account you tap and when.

If you're approaching retirement or already drawing down your savings, a conversation about withdrawal sequencing is one of the most valuable things you can do. Book a consultation with Marc to walk through your specific accounts and build a withdrawal plan that fits your retirement income picture.

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.