RRSP: When Does It Pay to Contribute, and When to Withdraw?

How to time contributions and withdrawals around high- and low-income years, and the contribution deadline

Scott Tang, CPAUpdated 2026-11-052026 rules5 min read

At its core, an RRSP moves income from years when your tax rate is high to years when it is low: in the year you contribute, you get a deduction at your marginal rate, and in the year you withdraw, you pay tax at the rate that applies then. So the key question isn't whether to contribute, but which year to deduct and which year to withdraw.

18%

Of the previous year's earned income as defined, up to $33,810 for 2026

March 1, 2027

Deadline for 2026 RRSP contributions

Deduct later

You can contribute this year and save the deduction for a year when your income is higher

Age 71

By the end of that year, you have to convert to a RRIF or an annuity; the November 5, 2026 budget plans to merge the RRSP and RRIF into an "RRSP for life" (consultation until January 8, 2027), and the current rules stay in place for now

You can contribute and deduct in different years

Many people don't know this: the contribution and the deduction don't have to be in the same year. In a low-income year, put the money in first (the investment income inside still grows tax-sheltered), and save the deduction for a year when your income is higher.

Low income this year

Contribute to your RRSP

Don't claim the deduction yet

Investment income grows tax-sheltered

As long as you have RRSP room; the deduction can be carried forward indefinitely

High income next year

Claim last year's contribution when you file

Deduct at a higher tax rate

A bigger refund

Suits people who already have room, are just starting work, or whose income varies a lot

When withdrawing makes more sense

Situation	A better time to withdraw Low tax rate	Be careful High tax rate or side effects
Just retired, not yet receiving CPP or OAS	✓In those low-income years, you can withdraw some first, as planned	—
A year without work, on leave or studying	✓Low income that year	◐The room used by the withdrawal doesn't come back
A year when your income is high	—	✕Taxed at a high rate
Already receiving OAS	—	◐Withdrawing a lot may trigger the OAS clawback
Buying a first home, going back to school	✓The Home Buyers' Plan and the Lifelong Learning Plan let you borrow from your RRSP tax-free	◐You have to repay it on schedule

Just retired, not yet receiving CPP or OAS

✅ A better time to withdraw: ✓In those low-income years, you can withdraw some first, as planned
⚠️ Be careful: —

A year without work, on leave or studying

✅ A better time to withdraw: ✓Low income that year
⚠️ Be careful: ◐The room used by the withdrawal doesn't come back

A year when your income is high

✅ A better time to withdraw: —
⚠️ Be careful: ✕Taxed at a high rate

Already receiving OAS

✅ A better time to withdraw: —
⚠️ Be careful: ◐Withdrawing a lot may trigger the OAS clawback

Buying a first home, going back to school

✅ A better time to withdraw: ✓The Home Buyers' Plan and the Lifelong Learning Plan let you borrow from your RRSP tax-free
⚠️ Be careful: ◐You have to repay it on schedule

The bank withholds tax first when you withdraw: 10% on a withdrawal of up to $5,000, 20% on more than $5,000 up to $15,000, and 30% on more than $15,000 (in Ontario and the other provinces outside Quebec). Withholding isn't your final tax; when you file, you get back any overpayment or pay any balance owing.

Some practical strategies

Spousal RRSP
The higher-income spouse contributes to an RRSP in the other spouse's name and claims the deduction, and the lower-income spouse withdraws the money later. If the contributor paid into any spousal RRSP in the year of the withdrawal or the 2 previous calendar years, the withdrawal may be taxed back to the contributor (T2205).
Reinvest your refund
Put the refund from your RRSP deduction into a TFSA or next year's RRSP, and the benefits build on each other.
One last time in the year you turn 71
In the final year before you convert to a RRIF, if you still have room you can contribute before year-end; if your spouse is younger, you can keep contributing to a spousal RRSP.

Points to watch

Check your room on your notice of assessment
Start from the available contribution room, then subtract new contributions not yet reflected in it; that figure already takes off contributions reported in past years but not yet deducted, so don't subtract those again. Example: with an RRSP deduction limit of $20,000 and $5,000 reported but not yet deducted, the available contribution room on your notice is $15,000; if you then contribute another $2,000, you can still contribute $13,000. Any amount more than $2,000 over your room is penalized at 1% a month.
Contributions in the first 60 days
Contributions made from January 1 to early March have to be reported on Schedule 7 for the year the rules require, and the deduction can be saved for later; check the room for each year separately.
Planning to leave Canada
RRSP withdrawals after you become a non-resident generally have 25% withheld (a tax treaty may lower this), so the tax is different from withdrawing while you live in Canada; see "After You Leave: What Happens to Your RRSP and TFSA?" in the Changing Tax Residency series.

How Sheng Qian CPA can help

A multi-year plan
Based on your expected income over the next few years, we plan which year to contribute, which year to deduct and which year to withdraw.
Using the right deductions when you file
Unused contributions from last year, first-60-days contributions and spousal RRSPs, all dealt with together when you file.
Looking at everything before retirement
We plan your RRSP, RRIF, CPP and OAS together (see "Planning Retirement Income: RRIF, CPP and the OAS Clawback" in this series); for prices, see "What Sheng Qian CPA Can Do for Investors: Tax Returns, Accounts and Annual Planning" in this series.

Sources

Disclaimer

This article is general information only and is not tax or investment advice. Everyone's situation is different; please consult a CPA about your specific arrangements. Service fees are as set out in our written quote.