Insights & Resources

For many couples, retirement drawdown looks straightforward at first. One spouse has the larger RRSP or RRIF, the other has a smaller account, and the obvious answer seems to be to drain the smaller one first. It feels simple, orderly, and often tax-efficient on the surface.

But RRSP meltdown planning rarely rewards tidy decisions. It rewards good sequencing. The tax result can change depending on whether the smaller account is a spousal plan, whether you are under or over age 65, whether pension splitting is available, and how close you are to future RRIF minimum withdrawals and Old Age Security clawback.

For Ontario couples with uneven registered assets, the right question is usually not <strong>which account should go first</strong>. It is how to structure withdrawals over time so that income is better balanced, tax brackets are used more effectively, and future options are not lost too early.

Start With Attribution

Before deciding whether to draw from the smaller account, confirm who will actually be taxed on the withdrawal. That step matters most when the smaller account is a spousal RRSP or a spousal RRIF.

Many couples assume that if the account is in one spouse’s name, the withdrawal will be taxed to that spouse. That is not always true. If the higher-income spouse contributed to any spousal RRSP for their partner in the year of withdrawal or either of the two prior calendar years, the CRA may attribute some or all of that withdrawal back to the contributor.

For spousal RRIFs, the rule is similar, but the minimum payment generally remains taxable to the annuitant. Attribution concerns usually apply to withdrawals above the minimum. The practical issue is the same either way: a withdrawal you expected to land on the lower-income spouse’s tax return may end up on the other return instead.

The first step in any RRSP meltdown strategy for couples is therefore very simple: review the last three calendar years of spousal contributions before touching the smaller spousal account. If you are still inside that window, it may make more sense to draw from other sources first or keep withdrawals modest and deliberate until the attribution risk has passed.

Before Age 65

For couples under age 65, the smaller spouse’s RRSP can be more valuable than it appears. These are often the bridge years between employment income and the full start of retirement benefits. CPP and OAS may not be in payment yet, and RRIF minimums have not started to force income out. That creates a planning window.

In these years, many couples default to withdrawing from the larger RRSP because it is easier administratively. One account generates the cash, one tax slip arrives, and the process feels clean. The problem is that this can concentrate taxable income on one return at a time when household income might otherwise be relatively low.

Those early retirement years are often the best opportunity to use lower tax brackets on both returns. If one spouse has a large RRSP and the other has a smaller non-spousal RRSP, parallel withdrawals can sometimes work better than relying only on the larger account.

The idea is not to trigger unnecessary tax. It is to avoid wasting low-bracket years. If both spouses are drawing some taxable income while total household income is still manageable, the long-term result can be better than leaving one spouse’s return largely unused and allowing the larger account to keep compounding until mandatory withdrawals become more aggressive later.

This is where the smaller account can serve as a useful bridge-year tool. Not because it should always be drained first, but because it can help spread taxable income across two returns when income splitting options are still limited.

That distinction matters. Under 65, the planning value of the smaller account is often in partial, coordinated withdrawals, not a full collapse.

After Age 65

Once a couple reaches age 65, the drawdown conversation changes. RRIF income is generally eligible pension income at age 65 and over, and eligible pension income can usually be split between spouses on the tax return, up to 50 percent. That means couples often have more flexibility to balance income without aggressively draining one spouse’s smaller RRIF.

This is where many well-intentioned decisions become too narrow. A couple may decide to collapse the smaller RRIF simply because it simplifies the household balance sheet. But simplification is not always the same as tax efficiency.

Suppose one spouse has a RRIF of $1.5 million and the other has a RRIF of $220,000. CPP and OAS are already in payment, and the couple is beginning to approach the OAS recovery threshold. For the 2025 income year, OAS repayment begins once net income exceeds $93,454. Above that level, each additional dollar can effectively face an extra 15 percent cost through reduced OAS benefits.

If the smaller RRIF is drained quickly, the couple may remove a useful planning lever. Keeping some retirement income in the lower-income spouse’s hands can help smooth tax brackets over time. It may also help that spouse claim the federal pension income amount on up to $2,000 of eligible pension income, with Ontario also offering its own pension income credit.

Could the couple rely entirely on pension splitting from the larger RRIF each year? Sometimes. But pension splitting is an annual election, and it does not solve every planning issue. Direct eligible pension income in each spouse’s name can still be valuable.

After age 65, the focus should usually shift from account order to income design. The more useful question becomes how much taxable income should end up on each spouse’s return after considering RRIF withdrawals, pension splitting, government benefits, and tax credits. Draining the smaller account too quickly can reduce that flexibility.

Do Not Ignore Survivor Planning

One of the most important parts of RRSP and RRIF drawdown planning is also the one many couples avoid. A strategy that looks efficient while both spouses are alive may create a much less efficient outcome for the survivor.

When the first spouse dies, one tax return disappears. While both spouses are living, income can often be spread across two returns and supported by credits available to each person. After the first death, the surviving spouse may be left reporting a much larger share of taxable retirement income alone.

This is why draining the smaller spouse’s RRIF is not always the harmless simplification it appears to be. If the couple gradually eliminates registered assets in one spouse’s name, they may be concentrating more future taxable income in the other spouse’s hands. That may not cause much strain today, particularly if pension splitting helps. But it can become much more expensive later.

For example, if one spouse has a $1.3 million RRIF and the other has a $300,000 RRIF, draining the smaller account first may improve the short-term tax picture only slightly. Over time, though, it can leave the survivor with a much larger registered balance generating taxable income on a single return. That can increase marginal tax rates and make OAS clawback more likely.

This does not mean the smaller account should never be drawn down. In some cases, the balance is small enough that preserving it will not materially change the long-term outcome. In others, current tax brackets may be low enough that earlier withdrawals still make sense. But for many couples, keeping meaningful registered assets in both names preserves flexibility for the years when only one spouse remains.

A useful test is this: the drawdown plan should still make sense in the version of retirement where one spouse is left carrying the tax burden alone.

RRIF Minimums and OAS Clawback

Even a well-structured drawdown plan becomes less flexible over time. Two forces gradually take control: mandatory RRIF minimum withdrawals and OAS clawback.

Before those rules become dominant, couples can choose how much to withdraw and when. Later, more of that decision is made for them. That is why early sequencing matters.

By age 71, an RRSP must be converted, and RRIF minimum withdrawals begin. At age 71, the minimum withdrawal percentage is 5.28 percent. At age 72, it rises to 5.40 percent, and it continues climbing with age. For larger registered balances, those percentages can create substantial taxable income whether the household needs the cash or not.

Take a retiree with a $1.8 million RRSP approaching the age 71 conversion deadline. If that amount becomes a RRIF and no earlier drawdown planning was done, the first-year minimum at 5.28 percent would be roughly $95,000 of taxable income. That is before adding CPP, OAS, or any other income sources. It does not take much from there to move into OAS repayment territory.

This is the forced-income problem. Deferring withdrawals can look tax-efficient in the short term, but if large balances are left untouched for too long, the later required withdrawals may create more tax than the household would have paid by drawing down earlier in a controlled way.

Two planning ideas are especially important here:

• Consider controlled withdrawals in earlier retirement years, when total taxable income may be lower.
• When setting up a RRIF, review whether using the younger spouse’s age to calculate the minimum withdrawal is appropriate.

That second point is often missed. A RRIF can generally be set up using the younger spouse’s age, which reduces the required minimum and can keep more money sheltered for longer. But that election typically needs to be made when the RRIF is established. Once the account is in place, that choice usually cannot be reversed.

This is one of the clearest examples of why sequencing matters. Waiting too long does not just delay the decision. It can remove options.

A Practical Sequencing Framework

Most couples do not need a rigid rule such as “always drain the smaller account first” or “always preserve both accounts.” What they need is a sequence that adapts as tax rules and retirement income sources change.

A practical framework often looks like this:

• Confirm whether the smaller account is a spousal RRSP or spousal RRIF and check the three-calendar-year attribution window.
• If both spouses are under 65, consider whether parallel withdrawals would make better use of lower tax brackets during the bridge years.
• After 65, shift the focus from account order to household income design, using direct RRIF income and pension splitting together.
• Before age 71, review whether earlier withdrawals could reduce future forced income and OAS clawback risk.
• Test the plan against the survivor scenario, not just the current-year tax return.

That sequence is often more useful than a one-time decision about which account to empty first. It reflects how retirement drawdown actually works. The right answer may change at 63, 67, 71, and 78, even if the couple’s overall asset mix has not changed much.

The common thread is that the smaller spouse’s registered account should usually be viewed as an income-control tool. Its value depends on timing, tax brackets, available splitting opportunities, future minimum withdrawals, and the long-term family picture.

Final Thoughts

For couples with uneven RRSP or RRIF balances, the smaller account is not automatically the first one to drain. In some cases, using it early is sensible. In others, draining it too quickly can reduce pension-splitting flexibility, increase future OAS clawback exposure, or leave the surviving spouse with too much taxable income on one return.

The better approach is to treat RRSP meltdown planning as a sequencing exercise. Check attribution first. Use the bridge years carefully. Reassess once pension splitting becomes available at 65. Plan ahead for RRIF minimums. And make sure the strategy still works for the surviving spouse. If you want help building a coordinated withdrawal strategy that accounts for taxes, government benefits, and long-term family planning, Ferguson Financial Planning can help you evaluate the trade-offs and structure a drawdown plan that fits your situation.