Retirement Withdrawal Order in Canada: RRSP, TFSA, or Non-Registered First?

When you shift from saving to spending, a new question arises that most people never had to answer while working: which account do you draw from first? You likely hold some combination of an RRSP or RRIF, a TFSA, and non-registered savings, and each is taxed in a completely different way. The order in which you draw from them affects how much tax you pay over your entire retirement, whether you keep your full OAS, and what you ultimately leave behind.

The familiar advice is to spend non-registered money first, then the RRSP, and save the TFSA for last. It is a reasonable default, but it is frequently not the best plan, because leaving a large RRSP untouched can create big, fully taxable RRIF minimums later in life, pushing you into higher brackets and into the OAS recovery tax. A more considered sequence often smooths your tax across the decades.

This guide is for retirees and pre-retirees in Ottawa and across Ontario who want to understand how withdrawal order works and why the right one is personal.

What makes this decision unusually powerful is that it is almost entirely within your control. You cannot command markets, inflation, or how long you will live, but you can decide which account funds each year’s spending, and that single choice influences your tax bill, your government benefits, and your estate across the whole of retirement. Few other retirement decisions offer so much leverage for so little cost, which is why it is worth moving past the default advice and thinking the sequence through properly.

The three account types and how they are taxed

The whole question turns on the different tax treatment of your accounts.

Account	Tax on withdrawal	Counts as income for OAS clawback	Estate treatment
RRSP / RRIF	Fully taxable	Yes	Fully taxable at death (unless to spouse)
TFSA	Tax-free	No	Passes tax-free
Non-registered	Only gains, at capital gains rates	Partly (gains, dividends, interest)	Deemed disposition may apply

Because RRSP/RRIF money is fully taxable and counts toward the OAS clawback, while TFSA money is tax-free and invisible to the clawback, the sequence you choose has real financial consequences. The non-registered account sits in between, taxed only on its gains.

Why the textbook order can backfire

The logic behind spending non-registered first and leaving registered accounts to grow is to maximise tax-sheltered growth. It sounds sensible, but it has a flaw: if you defer RRSP withdrawals as long as possible, the account keeps growing, and when RRIF minimums begin and rise with age, you can face large mandatory taxable withdrawals in your 70s and 80s.

Those big minimums can push you into a higher bracket exactly when you have the least flexibility, and can trigger the OAS recovery tax covered in OAS clawback explained. The money you tried to shelter ends up taxed heavily and all at once. This is the central reason the default order is not always optimal, and it connects directly to your RRSP to RRIF conversion planning.

The case for drawing some RRSP income early

For many retirees there is a valuable window in the early retirement years, after employment income stops but before CPP, OAS, and RRIF minimums are all flowing, when taxable income is relatively low. Drawing some RRSP or early RRIF income in those years, at a lower marginal rate, accomplishes several things:

• It reduces the size of the RRSP/RRIF, shrinking the large mandatory minimums later.
• It uses up lower tax brackets that would otherwise go unused in those years.
• It can help keep later income below the OAS clawback threshold.

This often pairs naturally with deferring CPP for a larger lifetime benefit, using RRSP withdrawals to bridge the gap, an approach we discuss in when to start CPP. The result is a smoother, lower lifetime tax bill, even though it means paying a little more tax earlier.

Where the TFSA fits

The TFSA is the most flexible account you have, because its withdrawals are tax-free and do not count as income for any purpose, including the OAS clawback. That makes it valuable in two ways. It is an excellent account to preserve for late-life flexibility and for your estate, since it passes tax-free. It is also a powerful tool during retirement to meet spending in a year when you want to keep net income down, for instance to avoid crossing the OAS threshold.

So while leaving the TFSA for last is often wise, it is better thought of as a flexible reserve you deploy strategically rather than one you simply never touch. Using it to top up income in high-tax years can be exactly the right move.

Managing the non-registered account

Non-registered accounts add nuance because only their gains are taxed, at the capital gains inclusion rate, and some income, such as eligible dividends, is grossed up in a way that can affect the OAS clawback more than the cash received would suggest. Drawing from non-registered holdings can be tax-efficient, particularly when realising gains in lower-income years, and tools like tax-loss harvesting can help, as covered in tax-loss harvesting in Canada. How these accounts are taxed is explained further in non-registered account taxation.

An illustrative sequencing example

The following is a hypothetical illustration to show how the pieces fit together. The figures are invented and your own situation would differ.

Picture a retiree who stops working at 62 with an RRSP, a TFSA, and a modest non-registered account, and who plans to defer CPP to 70 for a larger lifetime benefit. In the bridge years from 62 to 70, their employment income is gone and government benefits have not yet started, so their tax bracket is relatively low. Rather than leave the RRSP alone, they deliberately draw RRSP income in those years, filling up the lower brackets and meeting their spending, while topping up with TFSA withdrawals in any year that would otherwise push them higher.

By the time CPP and OAS begin at 70, and RRIF minimums follow, the RRSP has been meaningfully reduced, so the mandatory minimums are smaller and less likely to trigger the OAS clawback. The TFSA remains available as a flexible reserve for later years and for the estate.

Contrast this with the same retiree following the textbook order, spending non-registered first and leaving the RRSP to grow. In that path, the RRSP is larger when RRIF minimums begin, the minimums are higher, and more income is exposed to higher brackets and the clawback. The two retirees are identical; only the sequence differs, and over a long retirement that difference can be substantial. The example is illustrative, but the principle holds: using low-tax years deliberately is often where the value lies.

Building your personal sequence

Because every retiree has a different mix of accounts, income sources, and goals, the optimal order is genuinely individual. A sound process works like this:

1. Map your income floor from CPP, OAS, and any pension.
2. Identify your low-tax years, typically early retirement, and use them to draw RRSP/RRIF income or realise gains.
3. Smooth taxable income across the decades to avoid spikes and manage the OAS clawback.
4. Use the TFSA as a flexible reserve to fill gaps without raising net income.
5. Keep the estate in view, since RRSP/RRIF balances are taxed at death while TFSAs are not.

This is less a fixed formula than an annual decision, revisited as markets, tax rules, and your needs change. Coordinating it is the work of integrated retirement planning and tax planning, which look at the whole of your retirement rather than one year in isolation.

Next step

Withdrawal order is one of the highest-value decisions in retirement, because it quietly shapes your lifetime tax, your government benefits, and your estate. Moving beyond the textbook default to a sequence built around your own income and accounts can preserve meaningful amounts over time. To design a withdrawal sequence tailored to your situation, book a private consultation with Kevin Hayes Financial Services.