Our Disclosure

The content on this website includes links to our partners and we may receive compensation when you sign up, at no cost to you. This may impact which products or services we write about and where and how they appear on the site. It does not affect the objectivity of our evaluations or reviews. Read our disclosure.

3 Ways To Withdraw RRSP Funds Without Paying Tax


Fact Checked

Can you avoid paying taxes on RRSP withdrawals?

Generally, when you withdraw money from your RRSP, you pay taxes upfront (withholding taxes) and may owe even more taxes when you file your tax return.

Registered Retirement Savings Plans (RRSPs) are useful for investing toward retirement on a tax-deferred basis. However, when you dip into the pot to take out money, the taxman (CRA) shows up to take their cut.

Are there ways to withdraw money from your RRSP without paying tax or facing a penalty? Read on to find out.

How To Withdraw RRSP Money Tax-Free

There are 3 ways to take money from your RRSP and pay no taxes.

1. Home Buyers’ Plan (HBP)

The Home Buyers’ Plan allows Canadians to withdraw money tax-free from their RRSP to buy or build a home. You can borrow up to $35,000 or $70,000 in the case of a couple with RRSPs.

To qualify for the HBP, you must be a first-time homebuyer (i.e. not owned a home in the last four years). You must also complete Form T1036.

You have 15 years to pay back the full amount withdrawn into your RRSP, with the first payment due 2 years after your withdrawal.

The minimum annual HBP repayment is 1/15th of the amount borrowed. Assuming you withdrew the full $35,000, you must repay at least $2,333.33 per year.

When you don’t make the minimum repayment, the deficit is added to your income for the year and taxed.

Here are more details about the Home Buyers’ Plan and how it works.

2. Lifelong Learning Plan

If you are considering returning to school, the Lifelong Learning Plan (LLP) allows you to withdraw tax-free money from your RRSP to fund your education.

You can withdraw up to $10,000 per year and up to $20,000 in total over a 4-year period (or up to $40,000 for a couple).

To qualify for the LLP, you must be enrolled full-time in a qualifying educational program.

Monies withdrawn under the LLP must be repaid within 10 years, with a 1/10th minimum repayment per year. If you do not make the minimum payment in a year, the deficit is added to your income and taxed.

Interestingly, Canadians can use both the HBP and LLP at the same time.

Learn more about the Lifelong Learning Plan.

3. Withdrawals with Low or No Income

During years when you have little to no income from other sources, an RRSP withdrawal may result in a minimal or zero tax bill.

Here’s how this works:

When you withdraw money from your RRSP, your financial institution withholds tax on behalf of the CRA, regardless of your tax bracket or income level.

At tax time, you don’t pay taxes on the federal/provincial basic personal amounts. For example, the maximum federal basic personal amount for 2023 is $15,000.

If your RRSP withdrawal is $15,000 or less (not considering other tax credits, etc.), and you don’t have any other income, you won’t pay federal income taxes.

Given this scenario, you can expect a tax refund.

From the provincial side of things, let’s use Ontario as an example.

Ontario’s basic personal amount is $11,865 in 2023. Income below this amount will result in $0 provincial taxes for the 2023 tax year as well.

Check your provincial tax rates below:

If you plan to withdraw money from your RRSP before retirement, a good strategy is to do so in low-income years.

Costs of Early RRSP Withdrawals

Unless you are taking RRSP money for the HBP or LLP, you are likely going to pay taxes. There are also other downsides to withdrawing RRSP funds early.

Let’s start with the tax hit.

RRSP Withholding Tax

Your financial institution withholds tax on the amount you withdraw as follows:

RRSP WithdrawalTax Withheld Outside QuebecTax Withheld in Quebec
$0 – $5,00010%5%
$5,001 – $15,00020%10%

Québécois also pay a provincial sales tax.

If you are a non-resident of Canada for tax purposes, a 25% withholding tax is applied.

Depending on your marginal tax rate (tax bracket) at the end of the year, you may still owe federal and provincial taxes that are due by April 30th.

The other downsides to dipping into your RRSP before retirement are:

Loss of Contribution Room: When you take money out of your RRSP, which is unrelated to HBP or LLP, you lose the contribution room forever. You can’t add it back at a later date.

Loss of Tax-Deferred Growth: Withdrawals mean you have lost out on long-term investment growth. Even for HBP and LLP withdrawals, every day that passes by is a lost opportunity to potentially grow your retirement savings.

Lurking Penalties: If you forget or cannot make the minimum LLP or HBP repayments, the outstanding amount is added to your annual income, resulting in tax owing and lost contribution room.

How To Avoid RRSP Withdrawals and Penalties

If you need money, consider withdrawing from your TFSA first. TFSA withdrawals are tax-free, and you can recontribute the funds in future years.

Plan to have an emergency fund to pay for surprise costs and expenses. You can hold your emergency funds monies in a high interest savings account or TFSA and earn interest.

I fund my emergency fund through various side hustles.

If all else fails, see whether a personal loan or line of credit is a better alternative than raiding your RRSP.

RRSP Withdrawal FAQs

Can I take money out of my RRSP without penalty?

When you take money out of your RRSP for a home purchase (Home Buyers’ Plan) or educational costs (Lifelong Learning Plan), you don’t pay taxes and can re-contribute the amounts to your RRSP in later years.

How much can you withdraw from an RRSP without being taxed?

Taxes are withheld immediately when you make an RRSP withdrawal (outside of the HBP and LLP). If you are in a low-income tax bracket, the taxes withheld may be refunded when you file your income tax return.

Do you get taxed on RRSP after age 65?

Yes, RRSP withdrawals are subject to taxation at any age based on your marginal tax rate. If you choose to close your RRSP at age 71 by withdrawing the amount in cash, withholding taxes apply, and a further tax bill could show up at tax time.

Are there other ways to take out RRSP funds and avoid the immediate tax hit? Let us know in the comments.


Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

About Savvy New Canadians

Savvy New Canadians is one of Canada's top personal finance platforms. Millions of Canadians use our site each year to learn how to save for retirement, invest smartly, maximize rewards, and earn extra cash. We have been featured in prominent finance media, including Forbes, Globe and Mail, Business Insider, CBC, MSN, Wealthsimple, and TD Direct Investing. Learn more about Savvy New Canadians.

Free financial education

Expert advice

Free resources

Detailed guides

3 thoughts on “3 Ways To Withdraw RRSP Funds Without Paying Tax”

  1. Gravatar for Fred

    Can I remove 5000 per day from RRSP to keep with-holding tax down to 10%?

  2. Gravatar for Karen Legge

    I am wanting to dissolve my Rif what is the best way?

    • Gravatar for Enoch Omololu, MSc (Econ)

      @Karen: Best to chat with your financial institution. Withdrawal rules apply, however, you should be able to transfer to another bank, if that’s your plan.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.