How Much Tax Should You Withhold from Your RRIF Payments?

I. Introduction

A. The RRIF transition milestone

The conversion of your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund (RRIF), which must occur not later than the year you turn 71, but can take place earlier, is a major retirement milestone.

 

One of the notable elements of a RRIF is that minimum withdrawals do not have mandatory tax withholding. This is unlike withdrawals from an RRSP, which have a graduated withholding rate.

 

After a lifetime of deductions from your paycheque, this lack of mandatory withholding may offer quite a surprise if you are a new retiree. However, just because there is no mandatory withholding does not mean that a decision on the matter of withholding is unimportant.

 

B. Why withholding decisions matter

Regardless of the lack of withholding on minimum withdrawals, tax is still payable on RRIF withdrawals; the question is whether and how much to pre-pay. Poor withholding decisions can lead to large tax bills due in April and, eventually, instalment payments to the CRA, and potentially, unpredictable cash flows.

 

C. Context: Current Policy Debate

For years, several groups (e.g., CARP, IIAC, CALU, SIMA) have called for revising the mandatory RRIF rules, including pushing the conversion age past 71, reducing or removing minimum withdrawals, or even eliminating the requirement to withdraw.

 

Periodically, in times of crisis, the government has temporarily relaxed the annual minimum withdrawal rate. Examples include the 2008 financial crisis and the COVID-19 pandemic, which prompted the government to take this action.

 

Notably, the recently released 2025 federal budget did not reinstate a 25% reduction to RRIF minimums for one year, despite earlier political promises.

 

Please note that this blog post is not an argument for or against those policy proposals. Rather, I am writing this according to the rules as they are today and wish only to offer practical advice on how to plan RRIF withholding under the current regulatory regime.

 

II. How RRIF Withdrawals and Withholding Work

A. The RRIF minimum

The RRIF minimum is a percentage based on your age. For example, if you converted your RRSP to a RRIF this year, and also turned 65 in 2025, you would use 4.00% as the factor to calculate the amount you must withdraw in 2026.

 

 

 

The dollar amount is based on the value of your RRIF at the turn of the year. So, if your RRIF was worth $100,000 when you checked your account on January 1, 2026, you would have to withdraw a minimum of $4,000 in the course of the year. Typically, you can select withdrawals to automatically come to you on a monthly, quarterly, or annual basis. Many institutions will also allow you to take amounts of your choosing and timing, although an additional fee may be required.

 

RRIF income is fully taxable, just as if it were employment income. For this reason, even though there is no mandatory withholding on minimum withdrawals, many Canadians will want to take advantage of the option to withhold a portion of the minimum.

 

B. Withdrawals above the minimum

Withdrawals above the minimum are subject to mandatory withholding. The thresholds, outside Quebec, are, as you might be familiar with, for RRSP withdrawals, as follows:

 

• 10% (up to $5,000)
• 20% ($5,001–$15,000)
• 30% ($15,000+)

 

Let’s suppose we have the scenario as above, where $4,000 is the minimum RRIF withdrawal. If you instead want to withdraw $8,000, the first $4,000 could be withdrawn without tax being applied, while the next $4,000 would be subject to 10% withholding. That’s $400. In that scenario, you would receive a net amount of $7,600 [$4,000 + ($4,000 – $400)]. You can see in this case that withholding applies only to the amount above the minimum, not the entire withdrawal.

 

C. The essential principle

A point that anyone who deals with withholding should understand: RRIF withholding is not a tax rate. It is simply a prepayment toward the total tax bill.

 

III. Why RRIF Withholding Is a Personal, Not One-Size-Fits-All, Decision

A. Total income determines total tax

Your tax liability depends on all sources of annual income, not only RRIF withdrawals. If you have $150,000 in total taxable income in 2026, your marginal tax rate (the tax rate on the next dollar of taxable income), combining federal and Ontario income tax, for example, is over 40%. Congratulating yourself over only needing to withhold 5% of your total withdrawal ($400 ÷ $8,000) doesn’t mean you won’t have to pay a lot more at tax time.

 

B. Why retirees often underestimate their marginal tax rate

This reality can cause some confusion. If you only look at the withholding tiers and assume these represent income tax realities, you could be in for an unpleasant surprise when you learn that you owe 40% of your RRIF income in taxes and not 5 or 10%.

 

However, buried in this surprise is the key message that  RRIF withholding is one of the few available tools that retirees can use to manage their tax remittances.

 

IV. Sources of Taxable Income That Affect RRIF Withholding Decisions

While in your working years, you often only have one or two sources of income, employment income usually being the most prominent, and the withholding is taken care of by your employer. In retirement, taxable income can come from a variety of sources.

 

A. Registered income

• RRIF withdrawals: See above.
• Pension income
  • Defined Benefit: You can elect to have withholding apply to this income source, but it is not mandatory.
  • Defined Contribution:
    • Life Income Fund: When converting your DC pension to an income source, the common practice is to open a Life Income Fund (LIF). Like RRIF withdrawals, withholding will be applied to all amounts above the annual minimum payments, but you can request that withholding apply to the entire amount.
    • Annuity: If you use your DC pension assets to purchase an annuity, essentially converting your DC pension into a Defined Benefit plan, the insurance company that issues the annuity is required to withhold and remit a portion to the CRA based on the full amount of the payment.

 

B. Government benefits

• Canada Pension Plan: CPP is fully taxable, but recipients are not obligated to have payments withheld at the source.
• Old Age Security: OAS is also fully taxable, and again, withholding is an available option, but it is not required.

 

C. Non-registered investment income

Canadians often find it challenging to “max out” their RRSPs and Tax-Free Savings Accounts (TFSAs), but if you are among those who can do this, there are tax considerations that may apply to your RRIF, too.

 

• Interest and foreign dividends: These are fully taxable for the year in which they are received.
• Canadian dividends: Canada has a system where eligible dividend payments are grossed up. This increases net income. Then a tax credit is applied, which reduces, but may not eliminate, the amount of tax owed on the dividend.
• Capital gains: When capital gains are “realized,” i.e., property with a gain is disposed of, only 50% of the gain is included in income. For example, if you sold a property, which can include shares in a stock or in an Exchange-Traded Fund (ETF), and the value at the time of disposition was $10,000, while the Adjusted Cost Base (ACB) was only $5,000, you have made a capital gain of $5,000 ($10,000 – $5,000), but since only 50% of the gain is included, that means you have tax payable on only $2,500. If your marginal tax rate is 40%, then you will pay $1,000 on that gain.
• The important point here is that none of these sources of income (interest, dividends, or capital gains) will have tax withheld at source when held in a non-registered account.

 

D. Other income

Any of the following could also be sources of income:

 

• Rental income
• Self-employment or consulting income
• Spousal support received following a marriage breakdown
• Again, none of these would routinely have withholding applied.

E. The planning issue

The more income you have from sources with no withholding, the more RRIF withholding becomes your primary way to stay current with the CRA.

 

 

V. Choosing a RRIF Withholding Rate: The Key Approaches

Approach 1: Withhold Based on Average Tax Rate

Steps:

1. Estimate your annual income from all sources.
2. Use tax calculators or planning tools. ca has an excellent calculator.
3. Multiply your average tax rate by your RRIF withdrawal amount.

 

Illustration:

Barbara, age 72, has:

• CPP + OAS + a small Defined Benefit pension
• A $600,000 RRIF
• Her total income is $68,000.
• Her average tax rate is 17%.
• If she withdraws $24,000/yr from her RRIF, she will ask her financial institution to withhold 17% or $4,080.

 

 

Approach 2: Withhold Based on Marginal Tax Rate

This may work better for higher-income retirees or those planning lump-sum withdrawals.

 

Steps:

1. Identify your marginal tax rate. The lowest combined federal and Ontario rate is 19.05% on the first $53,891 of taxable income.
2. Apply that rate to RRIF withdrawals.

 

Illustration:

Ron, age 74, has:

• A large Defined Benefit pension
• Investment income from non-registered assets
• RRIF withdrawals
• His marginal tax rate is 43%.
• He instructs his financial institution to withhold 43% even though the “official” top tier for RRIF withdrawals is 30%.

 

Approach 3: Use RRIF Withholding to Cover Other Taxable Income

This approach is ideal when you:

 

• Have significant non-registered accounts with dividends/interest/capital gains.
• Would otherwise owe thousands each April.
• Want to avoid CRA instalment payments.

 

Illustration:

David, age 66, has:

• Meaningful T3 and T5 income from non-registered investments
• Realized capital gains reported on a T5008
• A modest Defined Benefit pension
• No tax is withheld on any of these income sources
• RRIF withdrawals will push him into a higher marginal tax bracket
• His taxable income is $52,000
• Solution:
  • Withdraw $24,000/year from RRIF
  • Request 40% withholding
  • This will cover both the tax required on the RRIF withdrawal and the tax generated on his DB pension and non-registered investment income.

 

 

Approach 4: Cash-Flow-Based Withholding

For retirees who want stable, predictable monthly income.

 

Steps:

1. Determine how much you want deposited.
2. Reverse-engineer gross withdrawal and withholding.

 

Illustration:

• Casey wants $2,000/month net.
• The financial institution calculates the gross required amount if withholding is set at 25%: $2,000 ÷ (100% – 25%) = $2,666.67
• Casey arranges to have $666.67 withheld per month.

 

 

Approach 5: Use CRA Instalments Instead of RRIF Withholding

Some retirees prefer keeping their RRIF payments higher and paying instalments.

 

Pros:

• This provides more control over cash flow during the year.
• It is arguably better for disciplined savers/investors.

 

Cons:

• Instalments feel like “tax bills.”
• There is always the potential for missed payments and consequent interest charges.
• High-income individuals may still face large April balances.

 

Illustration:

• Anita uses instalments because she draws only the RRIF minimum and has significant DB withholding already.

 

 

VI. Situations That Suggest Higher-than-Standard RRIF Withholding

If any of the following apply to you, it may be advisable to withhold more than the minimum amounts.

 

1. Large non-registered holdings
2. Real estate rental income
3. Annual capital gains from portfolio rebalancing
4. Pension + CPP + OAS already put you near the top of a tax bracket
5. You have an aversion to CRA instalments

 

• RRIF withholding will always be “on time,” no matter when it is paid.
• You have experience owing significant income tax in prior years
• A pattern of balances owing is a clear signal to adjust upward.

 

 

VII. Situations Where Minimal or Zero Withholding May Be Appropriate

1. You have very low taxable income and are eligible for GIS.
2. Substantial pension withholding already covers much of the tax you owe each year.
3. Those who prefer to pay tax only at filing time.

 

VIII. Conclusion

A. RRIF withholding is a planning tool, not a penalty

Withholding on RRIF withdrawals is not something to fear or to avoid. It is simply one of the tools available to help you stay on top of your tax obligations, manage your cash flow, and reduce the likelihood of unpleasant surprises in April.

 

B. The “right” amount depends on your situation

There is no universal withholding rate that works for everyone. The appropriate amount will depend on your overall income picture, the marginal tax rate that applies to your last dollar of income, your comfort level with CRA instalment payments, and whether you have other sources of taxable income, such as interest, dividends, or rental income, that arrive without any withholding at all.

 

C. Review your withholding annually

Your tax situation is not static. Income levels change, returns fluctuate, and government rules evolve. It is wise to revisit your withholding choices each year to ensure they continue to reflect your circumstances and preferences.

 

D. A final word

If you would like help estimating an appropriate withholding rate based on your retirement income sources, an advice-only financial planner can prepare a personalized projection and walk you through the implications.

 

 

This is the 304th blog post for Russ Writes, first published on 2025-11-24.

 

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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.