Taking money out of an RRSP sets off two taxes and one quiet, permanent loss: your financial institution holds back a slice of the withdrawal before the money reaches you, the full amount is added to your income for the year, and the contribution room you used is gone for good. None of that makes withdrawals wrong. The RRSP was always designed to be spent eventually, and the tax deferral only pays off when the money finally comes out. But the mechanics reward people who know them in advance.
The tax that comes off the top
The withholding tax is the part people meet first. When you withdraw from an RRSP (outside the Home Buyers’ Plan and Lifelong Learning Plan, which get their own section below), the institution is required to hold back a percentage and send it to the CRA on your behalf. The percentage climbs with the size of the withdrawal:
| Amount withdrawn at once | Withholding rate (outside Quebec) |
|---|---|
| Up to $5,000 | 10% |
| $5,001 to $15,000 | 20% |
| Over $15,000 | 30% |
Quebec residents see a lower federal percentage with a provincial withholding stacked on top (federal rates in Quebec are 5%, 10% and 15%, plus Quebec’s own withholding); the combined bite lands in the same neighbourhood.
Two things about that table. First, the tiers apply per withdrawal, which tempts people to break one large withdrawal into several small ones to stay in the bottom band. Institutions know this move well and can apply the rate for the combined total to a series of related withdrawals. Second, and more important: withholding is not the tax. It is a deposit against the tax.
The real bill arrives with your return. Every dollar withdrawn is added to your taxable income for that year and taxed at your marginal rate, exactly like salary, with the withholding credited against the result. If your marginal rate is higher than the withholding rate (common for anyone with employment income), you owe the difference in April. If it’s lower, say in a low-income year, some of the withholding comes back as a refund. That is the actual design of the account: tax deferred, not tax avoided. Timing a withdrawal against your income for the year is where the whole game lives, and it’s also where the mechanics stop and a conversation with an accountant begins.
The room never comes back, with two exceptions
Pull $10,000 from a TFSA and the room returns on January 1 of the following year; you can put the money back and carry on as if nothing happened. Pull $10,000 from an RRSP and that room is spent, permanently. There’s no putting it back: a later deposit of the same $10,000 consumes new contribution room, if you have any.
This is why the same emergency, funded from two different accounts, carries different long-term costs, and it’s one of the structural reasons the TFSA-versus-RRSP question never dies. It also cuts a smaller, practical way: issuers set rates on the two account types separately, so what a TFSA GIC pays and what the same issuer’s RRSP GIC pays can differ, which is why the current TFSA board is worth reading on its own rather than assumed from the RRSP side.
The two exceptions are federal programs, both structured as loans from yourself, that let you take RRSP money out with no withholding and no income inclusion.
The Home Buyers’ Plan lets a qualifying first-time buyer withdraw up to $60,000 toward a home purchase, repaid to the RRSP over 15 years. The Lifelong Learning Plan does the same for full-time education or training: up to $10,000 in a calendar year, to a total of $20,000, repaid over 10 years. In both cases, miss a year’s scheduled repayment and that slice is added to your income instead — the loan forgives nothing, it just converts to a regular withdrawal one piece at a time.
Because the money goes back in, these are also the only withdrawals that don’t burn contribution room. The repayments restore your own account without creating new deductions and without consuming new room. For a home purchase specifically, FHSA versus the Home Buyers’ Plan weighs the two registered routes side by side.
When the money is sitting in a GIC
An RRSP is a container, and inside it the dollars are usually invested in something, often a GIC. That adds a second lock on top of the tax rules. A non-redeemable GIC is a contract to leave the money until maturity, and holding it inside an RRSP does not loosen the contract: the issuer can refuse an early exit outright, or allow one at the cost of some or all of the interest earned. Cashable and redeemable GICs give that flexibility back at a price, since they post lower rates. (The redeemable-versus-non-redeemable split is covered in our guide to how GICs work, and the wrapper mechanics in how GICs work inside registered accounts.)
There is also a deadline that makes this planning mandatory. By the end of the year you turn 71, an RRSP must be converted, most commonly into a RRIF, which then requires minimum withdrawals every year. Whether an existing GIC can carry into the RRIF mid-term is the issuer’s call, so ask before buying a term that crosses that birthday. In practice, anyone who can see a withdrawal coming, including the mandatory kind, is really choosing maturity dates: matching terms to the date the money needs to be liquid, rather than reaching for the longest rate on the board.
Before anything moves
A withdrawal is a tax event, but everything before it is a rate event: while the money waits, it should be earning. The RRSP board shows what issuers currently pay on RRSP-eligible GICs and savings across terms, and a rate alert will flag when the rate for your term moves, so the next renewal (or the RRIF conversion) happens on current numbers rather than memory.
Frequently asked questions
How much tax is withheld on an RRSP withdrawal?
The tiers in the table above apply to each withdrawal, based on its size, with lower federal rates plus a provincial layer in Quebec. Remember that withholding is only an instalment: the withdrawal is taxed at your marginal rate when you file, and the difference is settled then, in either direction.
Do you get RRSP contribution room back after a withdrawal?
No. RRSP room is use-once: a withdrawal does not restore it, and redepositing the money later uses up new room. The exceptions are the Home Buyers’ Plan and the Lifelong Learning Plan, where repayments rebuild the account because the withdrawal is structured as a loan you pay back.
Can you cash out an RRSP GIC before it matures?
That depends on the GIC’s own terms rather than on the RRSP. A cashable or redeemable GIC can be exited under those terms. A non-redeemable GIC generally cannot, and where an issuer permits an early collapse, the usual price is forfeited interest. The tax consequences of the withdrawal itself apply on top.
What happens to an RRSP at age 71?
The account must be wound up by the end of the year you turn 71, typically by converting to a RRIF (an annuity or a lump-sum withdrawal are the other routes). A RRIF requires minimum annual withdrawals from the following year on, each taxed as income, though no withholding applies to the minimum amount.