Withdraw from your RRSP or from your non-RRSP savings?

Often, retirees are advised to withdraw from their RRSP after using all their non-RRSP savings, only to leave it for their estate. Depending on the family situation, the size of the RRSP and income and on the marginal tax rate, it may be best to withdraw from the RRSP first.

A single person's RRSP or RRIF may be subject to a high tax rate for the year of death, while withdrawals made during his or her lifetime may be subject to lower rates. One must evaluate the taxable income of coming years and the effect on the income of the year of death to make the RRSP withdrawals at the lower tax rate. By reinvesting the withdrawals, one could earn dividends or capital gains, which are always taxed less than interest income. This advantage has no effect on RRSP investments since no distinction is made between types of income, which are fully taxable when withdrawn.