Can You Transfer RRSP to TFSA? What Canadians Need to Know Before Moving Money
It sounds like a logical move—shift money from your RRSP into a TFSA so future withdrawals are tax-free. But can you transfer RRSP to TFSA directly? The short answer is no, not without tax consequences. And understanding exactly what happens when you try is critical before making any decisions that could cost you significantly at tax time.
This guide explains the rules around RRSP-to-TFSA transfers, what the Canada Revenue Agency requires, and the strategies Canadians use to move money between accounts as efficiently as possible—without triggering unnecessary tax bills.
Key Takeaways
You cannot directly transfer funds from an RRSP to a TFSA without tax consequences.
Any RRSP withdrawal is treated as taxable income in the year it is withdrawn—regardless of where the money goes afterward.
The withdrawn amount does not restore your RRSP contribution room.
You can deposit the after-tax proceeds into your TFSA, provided you have available TFSA contribution room.
Strategic, phased withdrawals over multiple years can minimize the tax impact of this process.
A licensed financial advisor helps you plan the timing and amount of withdrawals to reduce your overall tax burden.
Overview
This guide covers why a direct RRSP-to-TFSA transfer isn't possible under Canadian tax law, what actually happens when you withdraw from an RRSP, how to approach this strategically, and when this kind of account restructuring makes sense. We also address the most common questions Canadians ask about moving money between these two accounts. Athena Financial Inc. helps clients across Ontario and British Columbia plan account transitions that minimize tax and maximize long-term financial outcomes.
Why You Can't Directly Transfer RRSP to TFSA
The Canada Revenue Agency does not allow a direct, tax-free transfer between an RRSP and a TFSA. These are two distinct registered account types governed by different tax rules, and the CRA treats them as entirely separate for tax purposes.
The fundamental reason is straightforward: RRSP contributions were made with pre-tax dollars. The government deferred your tax when you contributed, with the expectation that you'd pay it when you withdraw. Moving those funds into a TFSA—where withdrawals are permanently tax-free—would allow you to avoid the tax the CRA deferred on your behalf entirely. The tax system doesn't permit that shortcut.
According to the Canada Revenue Agency, all RRSP withdrawals are included in your taxable income for the year they occur, and withholding tax is applied at source regardless of the intended destination of the funds.
What Actually Happens When You Withdraw From Your RRSP
When you withdraw money from your RRSP, the following happens automatically:
Your financial institution withholds a portion of the withdrawal for income tax at source
The full withdrawal amount—not just the portion you receive—is added to your taxable income for the year
You permanently lose that RRSP contribution room; it does not come back
Withholding tax rates on RRSP withdrawals in Canada:
| Withdrawal Amount | Withholding Tax Rate |
|---|---|
| Up to $5,000 | 10% |
| $5,001 to $15,000 | 20% |
| Over $15,000 | 30% |
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These withholding rates are not your final tax bill—they're prepayments. When you file your tax return, the full withdrawal is added to your income, and you pay tax at your actual marginal rate. If your marginal rate exceeds the withholding rate, you'll owe the difference. If it's lower, you may receive a refund.
This is why large, unplanned RRSP withdrawals can push you into a higher tax bracket and generate a significant balance owing at year-end. Understanding the costs of RRSP to TFSA transfers in detail helps you anticipate and plan for these tax consequences before you act.
The Two-Step Process Canadians Actually Use
While a direct transfer isn't possible, Canadians regularly move money from their RRSP into a TFSA using a two-step approach:
Step 1: Withdraw funds from the RRSP. Pay the withholding tax at source and include the withdrawal in your taxable income for the year.
Step 2: Deposit the after-tax proceeds into your TFSA, provided you have sufficient contribution room available.
This process works—but the tax cost in Step 1 is real and must be planned for carefully. The amount that lands in your TFSA is always less than what you withdrew from the RRSP, because income tax takes a portion along the way.
Example:
You withdraw $20,000 from your RRSP
30% withholding tax = $6,000 withheld at source
You receive $14,000
At tax time, the full $20,000 is added to your income
If your marginal rate is 40%, total tax owed = $8,000; you already paid $6,000, so you owe $2,000 more
Net amount available for TFSA: $12,000 (after full tax is settled)
The gap between what you withdrew and what you can actually deposit is significant. This math is why professional planning matters before initiating any RRSP withdrawal strategy.
When Does This Strategy Actually Make Sense?
Moving money from an RRSP to a TFSA isn't always the wrong move—it's just not free. There are specific situations where accepting the tax cost makes financial sense over the long term.
Low-Income Years
If your income drops significantly—due to parental leave, a career break, early retirement, or a business downturn—your marginal tax rate may be lower than in your working years. Withdrawing from your RRSP during a low-income year means paying tax at a lower rate than you would in a higher-earning period.
Before Government Benefits Begin
Many Canadians retire before OAS and CPP payments begin. The gap years between retirement and benefit commencement are often low-income years—a strategic window to withdraw from the RRSP at a reduced tax rate and redirect those funds to the TFSA for permanently tax-free growth.
To Reduce Future RRIF Minimums
Your RRSP must convert to a Registered Retirement Income Fund (RRIF) by age 71, after which mandatory minimum withdrawals apply annually. If your RRSP balance is large, these minimums can push you into a higher bracket and trigger OAS clawbacks. Strategically withdrawing from the RRSP in your 60s—before conversion—reduces the future RRIF balance and its mandatory minimums, while redirecting funds to a TFSA for tax-free flexibility.
To Protect Government Benefits
RRIF withdrawals count as taxable income and can reduce income-tested benefits like the Guaranteed Income Supplement (GIS) or trigger OAS clawbacks. TFSA withdrawals do not. Building your TFSA balance before retirement gives you a tax-free income source that protects these entitlements. This connects directly to the broader question of what is better, RRSP or TFSA for managing retirement income efficiently.
TFSA Contribution Room: A Critical Constraint
Before depositing any RRSP withdrawal proceeds into your TFSA, confirm you have enough available contribution room. Over-contributing to a TFSA triggers a 1% per month penalty on the excess amount until it's withdrawn.
Your TFSA contribution room accumulates as follows:
$7,000 per year for 2024 (indexed to inflation in $500 increments)
Cumulative room since 2009 for eligible Canadians: $95,000 as of 2024
Withdrawals from a TFSA restore that room—but only in the following calendar year
If you've never contributed to a TFSA and have been eligible since 2009, you may have $95,000 in available room—enough to absorb a significant RRSP withdrawal over one or two tax years. If you've maximized your TFSA, you'll need to wait for room to accumulate before depositing additional funds.
What About Spousal RRSPs?
If you contribute to a spousal RRSP, the withdrawal rules are slightly different. Withdrawals from a spousal RRSP are attributed back to the contributing spouse as income if the contribution was made in the current year or the two preceding calendar years. After that three-year window, the withdrawing spouse claims the income.
This attribution rule exists to prevent income splitting through rapid contribution and withdrawal. If you're planning to withdraw from a spousal RRSP and deposit into your spouse's TFSA, timing matters—and understanding the attribution rules beforehand prevents a surprise tax bill.
Alternatives to Withdrawing Your Entire RRSP
Many Canadians assume the RRSP-to-TFSA move requires withdrawing a large lump sum. In most cases, a phased approach is far more tax-efficient.
Phased annual withdrawals: Withdraw a specific amount each year—carefully sized to stay within your current tax bracket. Over five to ten years, you can systematically shift a meaningful portion of your RRSP balance into a TFSA without triggering higher marginal rates.
Supplement with other income sources: If you have non-registered investments or other income sources, using those for living expenses while directing RRSP withdrawals to the TFSA keeps total annual income lower and reduces the tax hit on each withdrawal.
Coordinate with retirement income timing: Align RRSP withdrawals with your CPP and OAS start dates to manage the combined income picture in each tax year.
These strategies require detailed income projections and tax modelling—exactly the kind of analysis a licensed financial advisor provides. Attempting to time and size these withdrawals without professional input often results in unnecessary taxes or missed opportunities.
How This Fits Into a Broader Investment Strategy
The RRSP-to-TFSA question rarely exists in isolation. It's part of a larger conversation about retirement income planning, tax efficiency, and long-term wealth management. Where you hold your investments—and in what account type—has a compounding effect on your lifetime tax bill.
Canadians who complement their registered accounts with products like segregated funds gain additional flexibility, since segregated funds can be held inside or outside registered accounts and offer insurance-based guarantees that registered accounts alone don't provide.
For those building a comprehensive retirement income plan, top investment strategies for long-term wealth provides additional context on how to structure assets across account types for maximum efficiency.
And for business owners whose retirement savings include both personal registered accounts and corporate retained earnings, the interaction between RRSP withdrawals, TFSA contributions, and corporate whole life insurance strategies adds further complexity that professional guidance is essential to manage properly.
Plan Your RRSP-to-TFSA Strategy With Athena Financial Inc.
Moving money from an RRSP to a TFSA can be a smart long-term strategy—but only when the timing, amounts, and tax implications are carefully planned. Done without professional guidance, this process often costs more in taxes than it needs to.
Athena Financial Inc. works with clients across Ontario and British Columbia to model RRSP withdrawal strategies, optimize TFSA contributions, and build retirement income plans that minimize tax across every stage of life. Our licensed advisors provide clear, numbers-based guidance so you can make this decision with full confidence.
📍 Serving Ontario and British Columbia, CA 📞 +1 604-618-7365
Contact us today to review your RRSP and TFSA strategy and find the most tax-efficient path forward for your financial goals.
Conclusion
The question of whether you can transfer RRSP to TFSA has a clear answer: not directly, and not without tax consequences. But that doesn't mean the strategy is off the table—it means it requires careful planning to execute efficiently. Withdrawing from your RRSP during low-income years, sizing withdrawals to stay within lower tax brackets, and depositing the after-tax proceeds into your TFSA can be a powerful long-term move when done correctly.
The difference between a costly mistake and a smart strategy often comes down to timing, amounts, and professional guidance. Athena Financial Inc. helps Canadians across Ontario and British Columbia plan RRSP withdrawals and TFSA contributions that minimize tax and maximize financial outcomes over the long term. Call us at +1 604-618-7365 today—and make sure your account transition strategy works in your favour, not against it.
FAQs
Q: Can you transfer RRSP to TFSA directly without paying tax?
A: No. A direct, tax-free transfer from an RRSP to a TFSA is not permitted under Canadian tax law. Any amount withdrawn from an RRSP is treated as taxable income in the year of withdrawal, regardless of where the money goes afterward. You pay income tax on the full withdrawal before the remaining after-tax proceeds can be deposited into a TFSA.
Q: Do I lose my RRSP contribution room when I withdraw to fund a TFSA?
A: Yes, permanently. Unlike TFSA withdrawals—which restore your contribution room the following year—RRSP withdrawals do not restore contribution room. Once you withdraw from your RRSP, that room is gone forever. This is an important consideration when deciding how much to withdraw, since you cannot re-contribute those funds to your RRSP later without using new contribution room.
Q: How much tax will I pay when I withdraw from my RRSP to put into a TFSA?
A: Your financial institution withholds tax at source—10% on withdrawals up to $5,000, 20% on amounts between $5,001 and $15,000, and 30% on amounts over $15,000. However, the full withdrawal is added to your taxable income for the year, and you pay tax at your actual marginal rate when you file. If your marginal rate exceeds the withholding rate, you'll owe additional tax at filing.
Q: Is there a best time of year to withdraw from my RRSP for a TFSA contribution?
A: Timing within the calendar year matters less than timing relative to your overall income in that year. The best time to withdraw is during a year when your total income is low—so the withdrawal is taxed at the lowest possible marginal rate. Many Canadians use early retirement years, parental leave, or sabbaticals as strategic withdrawal windows before CPP and OAS income begins.
Q: What if I don't have enough TFSA contribution room to absorb my RRSP withdrawal?
A: You can only deposit up to your available TFSA contribution room. If your withdrawal exceeds your room, deposit what you can and hold the remaining funds in a non-registered account until new TFSA room becomes available on January 1 of the following year. Over-contributing to a TFSA triggers a 1% monthly penalty, so confirm your available room before depositing any funds.
Q: Can I withdraw from a spousal RRSP and put the money into my TFSA?
A: Yes, but attribution rules may apply. If the contributing spouse made contributions to the spousal RRSP in the current year or either of the two preceding calendar years, the withdrawal is attributed back to the contributor as taxable income—not the account holder. After that three-year window passes, the account holder claims the withdrawal as their own income, which may allow for more strategic tax planning.
Q: Does withdrawing from my RRSP affect my eligibility for government benefits?
A: Yes. RRSP withdrawals increase your net income for the year, which can reduce income-tested benefits such as the Canada Child Benefit, GST/HST credit, or provincial supplements. In retirement, large RRSP or RRIF withdrawals can trigger OAS clawbacks or reduce GIS eligibility. This is one of the primary reasons retirees build TFSA balances—TFSA withdrawals don't affect income-tested benefit calculations.
Q: Should I withdraw my entire RRSP at once to move it into a TFSA?
A: Rarely. A lump-sum RRSP withdrawal pushes the full amount into your income for a single tax year, almost certainly triggering the highest marginal rates. A phased approach—withdrawing a carefully sized amount each year to stay within a lower tax bracket—spreads the tax cost over multiple years and typically results in significantly less total tax paid on the same amount of money.
Q: Can I use my RRSP Home Buyers' Plan withdrawal to contribute to a TFSA instead?
A: No. The Home Buyers' Plan allows you to withdraw up to $35,000 from your RRSP tax-free for a qualifying first home purchase, but the funds must be used for that purpose. Using HBP withdrawals to fund a TFSA is not permitted under the plan's rules. The tax-free treatment is conditional on purchasing a qualifying home—not redirecting funds to another registered account.
Q: How do I know if transferring from RRSP to TFSA makes sense for my situation?
A: The decision depends on your current income, expected retirement income, marginal tax rates, TFSA room, and the size of your RRSP. If you expect your retirement income to be similar to or higher than your current income, the tax cost of withdrawal may not justify the move. If you anticipate lower income in retirement or have specific years of reduced income ahead, strategic withdrawals can make strong financial sense. A licensed advisor can model both scenarios for your specific situation.