If you have spent decades building a substantial RRSP, you may have accumulated a valuable retirement asset—but also a significant future tax liability.

For an Ontario resident with $500,000, $750,000, or even $1 million or more in an RRSP, the question isn't simply "How much tax will I pay when I withdraw money?"

The more important question is:

How can I withdraw money from my RRSP and RRIF in a way that minimizes lifetime taxes, avoids unnecessary OAS clawbacks, and preserves more wealth for myself and my family?

Understanding how RRIF withdrawals are taxed is essential because RRIF income can affect much more than your income tax bill. The amount and timing of your withdrawals can influence your marginal tax rate, Old Age Security (OAS) recovery tax, the taxation of your spouse, and the amount of money ultimately available to your heirs.

For affluent Ontario retirees, RRIF withdrawals should therefore be viewed as part of a broader retirement income and tax strategy.

This guide explains how RRIF withdrawals are taxed in Ontario and highlights several planning opportunities that are often overlooked.

How Are RRIF Withdrawals Taxed in Ontario?

The basic rule is straightforward:

RRIF withdrawals are taxable income in the year you receive them.

Unlike a TFSA withdrawal, a RRIF withdrawal is generally added to your taxable income. The withdrawal is then taxed at your applicable federal and Ontario marginal tax rates.

The RRIF itself can continue to hold investments, and investment income earned inside the RRIF is generally tax-deferred until it is withdrawn. Once money comes out of the RRIF, however, the withdrawal is included in your income for tax purposes.

For someone with a relatively small RRIF and little other income, this may be relatively straightforward.

But consider an Ontario retiree with:

That person may already have significant taxable income before taking any additional RRIF withdrawals.

Adding a large RRIF withdrawal could push some or all of the additional income into a higher marginal tax bracket.

This is why the tax rate on your RRIF withdrawal depends on your total income—not simply the amount you withdraw.

RRIF Withdrawals Are Not Taxed at a Single "RRIF Tax Rate"

One of the most common misunderstandings about RRIF withdrawals is the idea that there is a specific tax rate for RRIF income.

There isn't.

RRIF income is generally taxed as ordinary income and is combined with your other sources of taxable income.

Your total taxable income may include:

The tax you ultimately owe depends on your overall tax situation.

For example, imagine an Ontario retiree who receives $60,000 of taxable income from pensions and government benefits.

If that person withdraws another $20,000 from a RRIF, the $20,000 doesn't exist in isolation. It increases total taxable income and may result in some of the additional income being taxed at a higher marginal rate.

This creates an important distinction:

The tax withheld from your RRIF payment is not necessarily the same as the final tax you will owe.

Your financial institution may withhold tax at source, but your actual tax liability is determined when you file your tax return.

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How Much Tax Is Withheld From a RRIF Withdrawal?

The amount withheld at source depends on whether you are withdrawing the RRIF's required minimum amount or taking an amount above the minimum.

Generally, no tax is required to be withheld at source on the RRIF minimum payment.

However, tax is generally withheld on RRIF withdrawals above the minimum amount using lump-sum withholding rates. CRA guidance indicates that withholding on RRIF excess amounts can depend on the total amount elected for withdrawal, rather than simply treating every small periodic payment as a separate withdrawal.

This creates an important planning issue.

Suppose you have a $1 million RRIF and decide to withdraw $100,000 during the year.

The amount withheld at source may not perfectly match your actual tax bill.

You could therefore face one of two situations:

For someone with a large RRSP or RRIF, it is therefore important to distinguish between:

Tax withholding
and
Actual tax liability

They are not necessarily the same thing.

What Is the Minimum RRIF Withdrawal?

Once you convert your RRSP to a RRIF, you are required to withdraw a minimum amount each year.

The RRIF minimum is calculated using a prescribed formula based primarily on your age and the value of your RRIF.

You can withdraw more than the minimum, but you generally cannot withdraw less than the required minimum.

The minimum payment generally begins in the year after the RRIF is established. You can also elect to use your spouse or common-law partner's age when establishing the RRIF for purposes of calculating minimum payments, provided the election is made when the RRIF is set up.

For a retiree with a large RRSP, this creates an important long-term planning challenge.

The RRIF minimum percentage increases as you get older.

That means your RRIF withdrawals may eventually become larger—even if you don't actually need the money to fund your lifestyle.

This is where the concept of RRIF withdrawal planning becomes important.

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The RRIF Minimum Withdrawal May Be More Than You Need

Consider a retiree who has:

The retiree may not need to withdraw a large amount from the RRIF.

But the government requires minimum withdrawals once the RRIF is established.

The challenge is that the RRIF withdrawal is taxable income—even if you don't need the money.

This can create a situation where the retiree has:

More taxable income than they need.

That extra income could potentially:

The key insight is that RRIF planning is not simply about meeting the minimum withdrawal requirement.

For individuals with large RRSP balances, the question should be:

How RRIF Withdrawals Can Trigger OAS Clawback?

For affluent Ontario retirees, one of the most important considerations is the interaction between RRIF withdrawals and Old Age Security.

The OAS recovery tax—commonly called the OAS clawback—is based on income.

If your income exceeds the applicable threshold, you may have to repay part of your OAS.

For the 2025 tax year, the OAS recovery tax threshold is $93,454. The recovery tax is generally 15% of income above the threshold, subject to the applicable rules.

This creates a potentially significant issue for someone with a large RRSP.

Imagine a retiree who has:

Their income may already be approaching or exceeding the OAS recovery tax threshold.

Now imagine that the RRIF withdrawal is increased to $70,000.

The additional RRIF income doesn't simply create additional income tax.

It may also increase OAS recovery tax.

This creates what can feel like a "double tax effect."

You pay income tax on the additional RRIF withdrawal, and you may also lose part of your OAS.

This is why a large RRSP balance should be viewed as more than a retirement savings account.

It is also a future taxable income stream.

The $500,000 RRSP Question: Should You Withdraw RRSP Money Before 71?

One of the most important planning questions for someone over age 55 is whether to wait until age 71 to begin significant withdrawals.

There is no universal answer.

The traditional approach is often:

That sounds logical because your investments remain tax-deferred.

But for someone with a large RRSP, this strategy can create a problem.

If you defer withdrawals for many years, your RRSP may continue growing.

At age 71, you generally must convert your RRSP to a RRIF or use another permitted option. The RRIF then becomes subject to mandatory minimum withdrawals.

Imagine two retirees.

Retiree A

Withdraws very little from their RRSP between ages 60 and 71.

Their RRSP grows from $800,000 to $1.2 million.

Retiree B

Begins strategic withdrawals at age 60.

They gradually reduce their RRSP balance while staying within targeted tax brackets.

At age 71, Retiree B may have a substantially smaller RRIF.

The second retiree may have paid more tax earlier.

But that does not automatically mean they paid more tax over their lifetime.

The real question is whether they avoided having future withdrawals taxed at higher marginal rates and reduced the possibility of OAS recovery tax.

This is one reason RRSP meltdown strategies are sometimes considered for high-net-worth retirees.

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What Is an RRSP Meltdown Strategy?

An RRSP meltdown strategy generally involves deliberately withdrawing RRSP assets over a number of years to reduce the future size of the RRSP or RRIF.

The goal isn't necessarily to pay the least tax this year.

The goal is to potentially reduce lifetime taxation.

For example, an Ontario retiree aged 60 may have:

Instead of withdrawing only what is needed, the retiree could consider withdrawing additional RRSP funds during years when their taxable income is relatively low.

The withdrawn funds could potentially be:

The strategy requires careful analysis because withdrawing too much too early can create unnecessary tax.

The objective is to find a balance between:

Tax paid today

and

Tax potentially avoided later.

For someone with $500,000+ in an RRSP, this is often a more meaningful question than simply asking, "How do I minimize my taxes this year?"

The Biggest RRIF Tax Mistake: Treating Every Year the Same

Retirement income doesn't have to be identical every year.

Your tax situation may change significantly between ages 55 and 95.

For example:

Age 60–64

You may have little taxable income if you have stopped working.

Age 65–70

You may begin receiving CPP, OAS, pension income, or eligible pension income.

Age 71+

RRIF minimum withdrawals become mandatory.

Age 80+

Your RRIF may be generating larger mandatory withdrawals while your spending needs may not have increased.

These different phases can produce very different tax outcomes.

A sophisticated retirement income strategy may therefore involve different RRIF withdrawal amounts in different years.

For example, it may make sense to withdraw more RRSP money during a low-income period before CPP and OAS begin.

Then, after government benefits begin, you may reduce voluntary withdrawals and rely more heavily on other sources of income.

The important point is:

Your retirement income plan should be dynamic—not a fixed withdrawal percentage applied every year.

RRIF Withdrawals and Pension Income Splitting

For married or common-law couples, RRIF withdrawals can also be considered as part of a broader income-splitting strategy.

Eligible pension income may qualify for pension income splitting, subject to the applicable rules.

RRIF income can generally qualify for pension income splitting once the recipient reaches the applicable age requirements.

This can potentially allow a couple to allocate up to 50% of eligible pension income between spouses for tax purposes.

For high-net-worth couples, this can be valuable because one spouse may have significantly more taxable income than the other.

For example:

Spouse A

Spouse B

Rather than automatically taking all retirement income in one spouse's name, the couple may want to explore whether pension income splitting can improve their overall tax position.

However, pension income splitting should not be considered in isolation.

The couple should also examine:

The goal is not simply to reduce one person's tax bill.

The goal is to optimize the couple's combined lifetime tax liability.

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Should You Withdraw From Your RRIF or TFSA First?

For someone with significant retirement assets, the answer isn't always obvious.

A common strategy is to leave the TFSA untouched because withdrawals are tax-free.

That can make sense.

But there are situations where strategically withdrawing from a RRIF or RRSP earlier may be beneficial.

For example, suppose you have:

You could potentially preserve the TFSA as a tax-free reserve for later retirement.

At the same time, you could gradually reduce the RRSP during lower-income years.

This may help reduce the size of future RRIF withdrawals.

However, the right strategy depends on your projected income, spending requirements, investment returns, tax brackets, and estate objectives.

The key is to avoid thinking about each account separately.

Instead, think of your retirement portfolio as having different tax characteristics:

The most tax-efficient withdrawal sequence may change throughout retirement.

Why Large RRSPs Can Create an Estate Tax Problem?

There is another issue that individuals with $500,000+ in RRSPs often overlook.

Your RRSP or RRIF does not necessarily receive the same tax treatment when you die as it does while you're alive.

In many situations, the remaining RRSP or RRIF balance can be included in your final tax return at death.

For someone with a large registered account, this can create a substantial tax liability for the estate.

Consider someone who dies with:

The RRIF may represent the largest potential tax liability.

This means the question isn't only:

It may also be:

This can change the way you think about RRIF withdrawals.

A strategy that looks tax-efficient during your lifetime may not be the most efficient strategy for transferring wealth to your children.

This is where retirement planning, tax planning, investment management and estate planning need to work together.

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The Right RRIF Strategy Depends on Your Entire Retirement Income Picture

For someone with a $500,000+ RRSP, the answer to "How are RRIF withdrawals taxed?" is only the beginning.

The more important questions are:

These questions are interconnected.

A decision made at age 60 can affect your tax bill at age 71.

A decision made at age 71 can affect your OAS at age 75.

And the amount remaining in your RRIF at death can affect how much wealth your family ultimately receives.

A Better Way to Think About RRIF Withdrawals

For Ontario retirees with substantial RRSPs, the goal should not necessarily be to pay the least tax this year.

The goal may be to create a retirement income strategy that balances:

Estate and wealth transfer objectives

The biggest opportunity often exists in the years before and immediately after retirement—when you have more control over your taxable income.

If you have accumulated more than $500,000 in your RRSP, your retirement plan should go beyond deciding how much you need to spend each month.

You need to decide which accounts to withdraw from, when to withdraw, how much to withdraw, and how those decisions affect your taxes over the next 20 or 30 years.

That is the difference between simply withdrawing money from a RRIF and actually having a tax-efficient retirement income strategy.

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Key Takeaways: How RRIF Withdrawals Are Taxed

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Final Thought

If you are an Ontario resident over age 55 with more than $500,000 in your RRSP, your RRIF is more than a retirement account—it is a future taxable income stream.

The decisions you make before and after retirement can influence your marginal tax rate, OAS recovery tax, retirement cash flow and the amount of wealth ultimately passed to your family.

The best time to start planning how your RRIF withdrawals will be taxed is often before you are required to take them.

Tax rules and thresholds can change. This article is for educational purposes and should not be considered individualized tax or financial advice. Your optimal withdrawal strategy depends on your personal circumstances, income, account types, age, spouse or partner, and estate objectives.