FAQ: How to Mix Withdrawals in a Decumulation Plan

Mixing withdrawals in a decumulation plan involves strategically drawing down funds from different accounts to optimize tax efficiency, maintain cash flow, and preserve your retirement assets. Here's how to approach it:

1. Prioritize Non-Registered Accounts First

• Why: Non-registered accounts are taxed on gains (interest, dividends, and capital gains) when withdrawn, but they don't have contribution limits or restrictions like registered accounts.
• Strategy: Withdraw from these accounts first to take advantage of their lower tax treatment in the early stages of retirement. This can reduce the taxable income from registered accounts (RRSPs, RRIFs).

2. Maximize Tax-Free Growth with TFSA

• Why: Withdrawals from a Tax-Free Savings Account (TFSA) are completely tax-free.
• Strategy: Defer TFSA withdrawals as long as possible to let the investments grow without tax consequences. Only tap into this account when needed for larger withdrawals or when other accounts have been exhausted.

3. Use RRSP or RRIF to Fill Lower Tax Brackets

• Why: RRSP (Registered Retirement Savings Plan) and RRIF (Registered Retirement Income Fund) withdrawals are taxable but can be managed to minimize tax impact.
• Strategy: Consider drawing enough from your RRSP or RRIF to fill up the lower tax brackets, ideally up to the first tax bracket limit each year. This helps reduce the overall tax impact, as the withdrawals will be taxed at lower rates.
• RRSP Meltdown Strategy: This involves systematically withdrawing funds from the RRSP early enough to use up all available tax credits, keeping you in a lower tax bracket over time.