XEQT Drawdown Sequence: Which Account First?

Why order matters

Different accounts in Canada are taxed differently. RRSP and RRIF withdrawals are taxed as ordinary income at your full marginal rate. Non-registered account withdrawals may trigger capital gains (taxed at 50% inclusion) or dividend income (with a dividend tax credit). TFSA withdrawals are completely tax-free.

The lifetime tax minimization goal is to take taxable income in a way that keeps your marginal tax rate as low as possible throughout retirement, avoids OAS clawback, maximizes the tax-free TFSA shelter, and properly manages RRIF mandatory minimums. No single withdrawal sequence is optimal for everyone because CPP amounts, provincial tax rates, OAS timing, and portfolio sizes all differ.

The three account buckets

The general sequence

The conventional wisdom on withdrawal sequencing is to draw from non-registered accounts first, RRSP/RRIF second, and TFSA last. This is often correct but not always optimal. The reasoning matters.

Drawing from non-registered accounts first preserves the tax shelters (RRSP and TFSA) for as long as possible, allowing them to compound tax-deferred or tax-free. Capital gains in non-registered accounts are taxed at only 50% inclusion, which is often a lower effective tax rate than an RRSP withdrawal at your full marginal rate.

However, the optimal strategy may involve drawing from the RRSP/RRIF in early retirement to deliberately reduce its size before OAS begins or before RRIF minimums become forced. A large RRSP/RRIF can create problems: the mandatory minimums force income that may push you into a higher bracket or above the OAS clawback threshold. Deliberately drawing down the RRSP/RRIF in years 65 to 70 at a controlled rate can reduce these forced withdrawals later.

This is a complex enough area that different situations call for genuinely different sequences. The principles below apply broadly, but the optimal execution depends on your specific portfolio sizes, CPP amounts, OAS timing, and provincial tax rates.

RRIF minimums after 71

At age 71, every Canadian must convert their RRSP to a Registered Retirement Income Fund (RRIF) or an annuity. The RRIF requires a minimum annual withdrawal based on the account balance and a percentage factor that increases with age.

At age 71, the minimum RRIF withdrawal is approximately 5.28% of the January 1 balance. By age 80, it reaches approximately 6.82%. By age 90, it is 11.92%. These minimums are taxable as income in the year withdrawn, whether or not you need the money for living expenses.

A large RRIF balance can force taxable income that pushes you into higher tax brackets and above the OAS clawback threshold even if your living expenses do not require it. This is why proactive RRSP drawdowns between 65 and 71 can be valuable: reducing the RRIF principal before mandatory minimums begin reduces the forced taxable income in later retirement.

The XEQT holdings inside a RRIF continue to grow tax-deferred. You draw out the minimum (or more), converting that portion to taxable income. The remaining balance continues to compound. The key is managing the minimum withdrawal amounts relative to your income needs and tax situation. For the full RRIF mechanics, see our RRSP to RRIF guide.

OAS clawback management

OAS benefits are clawed back at a rate of 15 cents per dollar of net income above the threshold, approximately $90,997 for the 2026 tax year. Full OAS is eliminated at income of approximately $148,000. For retirees with large RRIFs, this clawback can eliminate a significant portion of their OAS.

Managing income to stay below the OAS clawback threshold is a legitimate planning goal. If RRIF minimums are forcing your income above the threshold, strategies include pension income splitting with a spouse (which can move up to 50% of RRIF income to the lower-income spouse), deferring non-essential income, and using TFSA withdrawals (which do not count toward income) to fund expenses that might otherwise require taxable RRIF or non-registered withdrawals.

Note that the OAS clawback is based on your total net income, not just your RRIF withdrawals. CPP, RRIF income, non-registered dividend and interest income, and rental income all contribute. Capital gains from selling XEQT in a non-registered account are included at 50% of the gain. TFSA withdrawals are not included.

The role of the TFSA

The TFSA is uniquely powerful in retirement for several reasons. Withdrawals are tax-free and do not count as income for any purpose: no effect on OAS, no effect on GIS, no effect on income-tested provincial benefits. The room is restored January 1 of the following year. Assets inside the TFSA do not form part of the taxable estate (for jointly held accounts or with a designated successor holder).

For retirees in the OAS clawback zone, the TFSA is an income source that does not trigger clawback. For retirees concerned about forced RRIF income, the TFSA provides a tax-free alternative. For retirees who want to pass wealth to heirs, a TFSA with a successor holder transfers directly without passing through the estate, avoiding probate and preserving the tax shelter.

Growing a TFSA holding XEQT as large as possible before retirement, and being deliberate about when to draw from it, is one of the highest-value planning moves available to Canadian investors. Every dollar inside the TFSA compounds tax-free and comes out tax-free forever.

Pension income splitting

Canadians aged 65 and older can split up to 50% of eligible pension income (including RRIF withdrawals) with a spouse for tax purposes. If one spouse has a large RRIF and is in a higher tax bracket, and the other spouse has less income, pension splitting can move income from the high-bracket spouse to the low-bracket spouse, reducing the household's combined tax bill.

This is particularly valuable when one spouse has significantly more RRSP/RRIF assets than the other, which is common in households where one partner had higher career income or contributed more to registered accounts. For the full details of how pension splitting interacts with XEQT held in RRIF accounts, see the pension income splitting guide.

A worked scenario

A concrete example illustrates how the sequence plays out. This is illustrative only and not a template for your specific situation.

This scenario is illustrative. Your optimal sequence depends on your specific numbers, provincial tax rates, CPP amounts, and goals. A fee-only financial planner can model the lifetime tax implications of different sequences with precision specific to your situation.