Author: Aaron Hector

As you approach retirement, you may find yourself in a uniquely valuable tax position—your final year of high income followed by a significant drop in taxable income the very next year. If all your savings are inside an RRSP and you still have contribution room, this income shift creates a window for a high-impact tax planning opportunity.

The Scenario

Let’s say you’re planning to retire in late 2025 or early 2026. 2025 is your final full year of high income, and starting in 2026, your income will drop substantially.

Despite being a diligent saver, having amassed an RRSP of $1,500,000, you still have ample RRSP contribution room available. You’ve always focused on maximizing RRSP savings each year, and as a result, you have nominal savings outside of your RRSP.

Most people in this situation would begin to take RRSP withdrawals as needed after they stop working to meet their cashflow requirements. But as you will see in the strategy outlined below, there is an opportunity in very early retirement to initiate a large lump sum transaction that could provide significant tax savings.

The Tactic

Here’s a simple yet powerful move:

• In early 2026, withdraw funds from your RRSP.
  Then immediately recontribute that same amount within the first 60 days of 2026.

This allows you to:

• Report RRSP income in 2026, when your income is low
• Claim an RRSP deduction on your 2025 tax return, when your income is high

Important: The recontribution must be made within the first 60 days of 2026 to count as a deduction for your 2025 taxes.

The Result: Strategic Tax Rate Arbitrage

This strategy lets you move taxable income out of a high-rate year and into a low-rate year, while claiming a deduction in the highest tax bracket you’ll ever face again.

Example

Let’s assume:

• Your income in 2025 is taxed at 40%
• Your income in 2026 will be taxed at 25%
• You withdraw $50,000 from your RRSP in January 2026
• You recontribute that $50,000 back into your RRSP within the first 60 days of 2026 (applied as a deduction to your 2025 return)

Here’s the impact:

You’ve essentially created $7,500 in tax savings just by shifting income across two tax years—with no change in your overall investment strategy.

What to Watch Out For — and a Smart Workaround

One challenge with this strategy is withholding tax:

• RRSP withdrawals are subject to mandatory withholding. For a $50,000 lump sum, the rate is 30%.
• That means you’d only receive $35,000, with $15,000 withheld at source.
• Unless you have another $15,000 in non-registered cash, you won’t be able to recontribute the full $50,000.

The Fix: Use a RRIF to Avoid Withholding

Here’s how to make it work cleanly without needing extra cash on hand:

1. In December 2025, convert $1,250,000 of your RRSP into a RRIF.
2. At age 65, the minimum withdrawal rate is 4%, which generates $50,000 of required income in 2026.
3. In January 2026, withdraw that $50,000 minimum — which comes out without any withholding tax because it is the required minimum RRIF withdrawal for the year.
4. Re-contribute that $50,000 to your RRSP within the first 60 days of 2026, and claim the deduction on your 2025 return.

This allows the strategy to be executed with no cash shortfall and no tax withheld at source.

Optional Reset: Convert the RRIF Back to an RRSP

If you don't want to continue with RRIF minimum withdrawals in future years, you can convert the RRIF back into an RRSP in 2026, as long as you're under age 72. This gives you full control over future withdrawals while still unlocking the current-year tax savings.

Why This Strategy Works

This approach takes advantage of marginal tax rate differences between your final high-income year and your first low-income year in retirement. Instead of locking in a high tax rate on withdrawals later in life, you can recognize income in a year where it’s taxed more favourably—while still getting the deduction in your peak earning year.

It’s one of those rare planning opportunities where you can create value without needing investment growth—just intelligent timing.

Ready to Plan Smarter?

At TIER Wealth, we specialize in helping clients transition into retirement with precision— we look after your tax planning and then prepare the filings, through our partnership with Q Wealth, we have access to  investment management,  and we optimize your estate and retirement planning priorities.

If you're within a year or two of retirement, now is the perfect time to start putting strategies like this into place.

Let’s talk. Your retirement deserves more than just a smooth landing—it deserves a tax-smart takeoff.