RRSP Meltdown: Draw Early to Avoid the OAS Clawback

Why the clawback matters: a hidden 15% tax

The OAS recovery tax, usually called the clawback, asks you to repay 15% of your net income above a threshold, up to the full OAS you received. Net income is the amount on line 23400 of your return. The CRA indexes the threshold every year (as of October 2026):

In practice, the clawback works like an extra tax bracket. A retiree with net income of $100,000 in 2026 is in the 20.5% federal bracket, which runs from $58,523 to $117,045 (as of October 2026). Every extra dollar in the clawback zone costs 20.5% federal tax plus 15% of OAS repayment, so 35.5% federal before provincial tax. Above $117,045 it becomes 26% + 15% = 41% federal, plus provincial. That is a top-bracket marginal rate on what is, for most people, a middle income.

The maximum OAS for July to September 2026 is about $742.31 a month at 65 to 74, or about $8,908 a year, and 10% more from 75 (as of October 2026). If you defer OAS, it grows by 0.6% for each month after 65, up to 36% more at 70. The clawback can take back all of it, so the stakes are real. For the full list of ways to reduce it, see our OAS clawback 2026 threshold and strategies guide, and for the year-by-year thresholds, our OAS clawback thresholds chart. This article focuses on one lever: when you take money out of your RRSP.

How a big RRSP creates forced income in your 70s and 80s

Your RRSP must be converted to a RRIF, used to buy an annuity, or withdrawn by December 31 of the year you turn 71. From the next year on, the RRIF pays at least a minimum each year: the January 1 value times a factor set by your age on January 1.

At 70 or younger the factor is 1 ÷ (90 − age). The last column applies each factor to the same $800,000 to show how the rate climbs; your real balance will rise or fall with returns and withdrawals.

The factor rises every year. If your investments earn roughly what the factor takes out, the RRIF balance barely shrinks and the minimum stays high for decades. Add a workplace pension, CPP and OAS, and the total can sit just above $95,323 year after year. You cannot turn the minimum off: once the RRIF exists, that income is on your return whether you need it or not.

There is also the end of the story. At death, a RRIF or RRSP that is not rolled over to a spouse or common-law partner is fully taxable on your final return, often at the top rate. A large untouched RRSP can be expensive twice: clawback while you live, high tax when you die.

The meltdown idea

Many people retire before 65 and have a few years with modest income: no salary, and CPP and OAS not yet started (or deliberately deferred). Those years have empty room in the lower tax brackets. The meltdown uses that room on purpose:

• Withdraw extra from the RRSP or RRIF in the low-income years, for example from 60 to 70, up to a target income that stays in a bracket you are comfortable with and under the clawback threshold.
• Live on that money instead of drawing on non-registered savings or the TFSA, or move the after-tax surplus into a TFSA. TFSA withdrawals are tax-free and do not count as income for the clawback. Room you withdraw comes back on the next January 1, and the 2026 annual limit is $7,000 (as of October 2026).
• Arrive at 71 with a smaller RRSP, so the RRIF minimums, and your net income, are lower for the rest of your life.

You are not avoiding tax on the RRSP; every dollar is taxable whenever it comes out. You are choosing to pay it at 14% or 20.5% federal now rather than at 20.5% plus a 15% clawback later, and shrinking the balance that would be taxed in one year at death.

Pairing it with deferring OAS and CPP to 70

Deferring OAS and CPP to 70 fits naturally with a meltdown. While the benefits are deferred, the years from 65 to 70 have even more bracket room for RRSP withdrawals, and the RRSP effectively pays your living costs while the benefits grow. OAS at 70 is 36% higher, about $12,115 a year at today's rate, and CPP also grows for each month you defer. The catch: those larger benefits are income too, so after 70 they take up more space under the threshold. The deferral works best when the RRSP has been drawn down enough that the larger benefits plus a smaller RRIF minimum still fit under $95,323.

Worked example: a $700,000 RRSP at 62

Marc is 62 on January 1, 2026, retired, single, and has $700,000 in his RRSP. He has an indexed workplace pension of $30,000 a year and will take CPP of $14,000 and the full OAS (about $8,908, about $9,800 from 75) from 65. We compare two plans:

• Scenario A, no meltdown: Marc leaves the RRSP alone, converts it to a RRIF at the end of the year he turns 71 and takes only the minimum from 71 on.
• Scenario B, meltdown: Marc withdraws $40,000 a year at ages 62 to 70 (nine withdrawals), then converts what is left and takes the minimum from 71 on. He puts $7,000 a year of the after-tax money into his TFSA and spends the rest instead of using other savings.

Assumptions: a 5% annual return and 2% inflation. To compare everything with today's $95,323 threshold, all amounts are in 2026 dollars, which means a return of about 3% after inflation. Withdrawals are taken at the end of each year. Ages are on January 1, the age the CRA uses for the minimum. Benefits and the threshold are assumed to keep pace with inflation.

RRSP and RRIF balance and minimum

Example check, Scenario A at 72: $892,517 × 5.40% (the CRA factor at 72) = $48,196. Scenario B at 75: $458,711 × 5.82% = $26,697. In 2026 dollars the minimum stays almost flat for twenty years, because the rising factor roughly matches the 3% real return.

Net income compared with the threshold

Net income = pension $30,000 + CPP $14,000 + OAS + RRSP withdrawal or RRIF minimum. Scenario A at 72: $30,000 + $14,000 + $8,908 + $48,196 = $101,104, which is $5,781 over $95,323; 15% of that is about $867 of OAS repaid.

What the numbers say

• Scenario A crosses the threshold at 71 and stays over it every year. Over ages 71 to 90, the clawback adds up to about $18,500 in 2026 dollars. The top slice of each year's income, about $5,800 to $6,600, is taxed at 35.5% federal plus provincial.
• Scenario B never crosses it. During the meltdown years his income of $70,000, then $92,908, stays under $95,323, and the extra withdrawals are taxed mostly at 20.5% federal (part at 14%). After 71 his income is around $80,000, with room to spare for a good investment year or a one-off capital gain.
• At 90, Scenario A still has a RRIF of about $398,000, all of it taxable on a final return if there is no surviving spouse. Scenario B has about $221,000 in the RRIF plus a TFSA of about $125,000 that passes tax-free.

The gain here is real but not dramatic: the meltdown mainly removes the 15% clawback layer and shrinks the taxable balance at death. In exchange, Marc pays some tax earlier and gives up tax-deferred growth on the money he spends. The bigger the RRSP and the further over the threshold Scenario A would land, the more the meltdown is worth. You can test your own balance and withdrawals in the retirement payout calculator and check the result against the OAS clawback calculator.

The withholding trap: RRSP lump sums versus RRIF payments

How you take the money changes how much is held back at source. On an RRSP withdrawal, the financial institution withholds tax on the whole amount at one rate set by its size (as of October 2026): 10% up to $5,000, 20% over $5,000 up to $15,000, and 30% over $15,000. In Quebec, the federal rates are 5%, 10% and 15%, plus 14% Quebec tax. The CRA looks at the total amount requested, so splitting one $40,000 request into ten $4,000 pieces does not lower the rate.

For Marc, a single $40,000 RRSP withdrawal means $12,000 withheld (30%), or $11,600 in Quebec (15% + 14%). His real federal rate on that money is mostly 20.5%, so part of it comes back as a refund, but only after he files.

A RRIF is different: nothing is withheld on the minimum, and only the amount above the minimum is withheld at the rates above. Suppose Marc moved his RRSP to a RRIF the year before he wanted payments. At 65, the minimum on about $641,000 is 4.00%, or about $25,650, with no withholding. Only the remaining $14,350 is withheld, at 20%, about $2,870. Remember that withholding is a prepayment, not the final tax: the total tax is the same either way, but cash flow is much smoother with the RRIF.

Two extras that make the meltdown better at 65

The $2,000 pension income amount

From 65, RRIF payments are eligible pension income; lump-sum RRSP withdrawals are not. The federal pension income amount covers up to $2,000 of eligible pension income at 14% for 2026, or $280 a year (as of October 2026). Running the meltdown through a RRIF from 65, instead of RRSP lump sums, collects that credit every year. You don't have to convert everything: our guides on claiming the $2,000 credit with a RRIF at 65 and converting part of your RRSP to a RRIF explain a partial conversion.

Pension income splitting

With Form T1032, you can allocate up to 50% of your eligible pension income, including RRIF income from 65, to your spouse or common-law partner. If one spouse has the big RRSP and the other has little income, splitting can bring each spouse under the threshold. In Scenario A, a married Marc with a low-income spouse could move part of his pension and RRIF income to her return and likely avoid the clawback without a meltdown. That is why couples often need a smaller meltdown than single retirees.

When a meltdown does not make sense

• The RRSP is modest. If your projected RRIF minimum plus other income will stay well under $95,323, there is no clawback to avoid. Early withdrawals just mean paying tax sooner.
• Your income is already low. If you are in the 14% bracket for life, there is little difference between paying tax now and later.
• You expect to qualify for the Guaranteed Income Supplement. At that income level the clawback is not the issue; GIS is, and it is reduced sharply as other income, including RRIF withdrawals, rises. Timing withdrawals around GIS needs its own analysis.
• Your current income is high. If you are still working or have a large pension in your early 60s, extra RRSP withdrawals would be taxed at 26% to 33% federal, plus provincial, possibly more than the clawback costs later.
• Life expectancy. With a shorter life expectancy, deferring CPP and OAS to 70 often doesn't pay, and there may be few clawback years to avoid. On the other hand, a large RRIF left to someone other than a spouse is fully taxable at death, which argues for drawing some of it down. Weigh both.
• Lost tax-deferred growth. Money withdrawn and spent, or invested in a taxable account, stops compounding tax-free. The TFSA limits the damage, but only up to your room.
• Lost contribution room. RRSP withdrawals before conversion are fully taxable, and the contribution room is not restored. If you still have earned income and RRSP room has value to you, keep that in mind.

Before you start

This article is general information based on CRA and Service Canada rules as of October 2026, not personal tax or financial advice. The example uses simplified assumptions (constant returns, federal tax only, no other income or credits); provincial tax, your spouse's situation and actual returns will change the result. Consider speaking with a qualified advisor before acting.

Related Reading

OAS Clawback 2026: $95,323 Threshold and Strategies to Reduce It covers every way to lower your net income, and the OAS clawback thresholds chart shows the figures by year.

For French readers: Décaisser son REER tôt pour éviter la récupération de la SV.

Check Your Clawback Risk

The OAS Clawback Calculator shows how much OAS you would repay at a given net income, so you can see whether today's RRSP plan leaves you over the threshold later.