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Can You Transfer RRSP To TFSA Without Penalty? 

Retirement savings is very important since is it the support for your after-work life days. In Canada, the government provides amazing options to save such as RRSP (Registered Retirement Savings Program) and TFSA (Tax-Free Savings Account). The malady for many people is how they can transfer RRSP to TFSA without penalty in the process? 

It has already been cleared that when you don’t have a cap for withdrawals from the RRSP or TFSA account unless they are locked-in accounts, the CRA (Canada Revenue Agency) has different regulations for both these kinds of accounts. In this article, we will look for ways to transfer RRSP to TFSA without paying a heavy penalty. So, let us get into it. 

Read: Can You Withdraw RRSP Without Paying Taxes?

How to Withdraw from an RRSP Account?

RRSPs are a crucial income source for the time when you retire but you are not obliged to retain this money till your retirement. You are allowed to withdraw it before time and spend it for emergencies if needed. When the RRSP money is withdrawn from your account, it is an addition to the income slab and you will have to pay the specific tax rates for it. 

However, you can also withdraw money without paying a penalty if you use it for LLP (Lifelong Learning Plan) or a Home Buyer’s needs. 

You are allowed to contribute money to your RRSP until you are 71 years old. After which you are obliged to shut your office down and cash out the entire amount or move the amount of RRSP to an Annuity or Registered Retirement Income. Hence, the gist is to use RRSP after you turn 71, you can spend it or transfer it to another account. 

Read: Top 15 RRSP and TFSA Mistakes to Avoid in Canada!

What is the Use of TFSA?

TFSA or the Tax-Free Savings Account was launched in 2009. People of age 18 years or more are allowed to contribute to the TFSA account each year based on the limits that are declared each year.

In 2021, you can invest up to $6,000 in a TFSA account. In case, you are not able to contribute the whole amount of the current year, you can carry the room forward to the following years. Hence, if you are eligible since the creation of TFSA and you have contributed $0 till now, you have room for a contribution of over $75,500.

You can hold your TFSAs in bonds, stocks, mutual funds, cash, GICs, index funds, etc. The contributions in your TFSA are tax-free. But the contributions that you do at the start are not tax-deductible.

Read: What are GICs in Canada?

Transfer RRSP to TFSA

RRSP is the indispensable tool that holds funds for your retirement in place. To safeguard your savings and ensure that your retired future is safe and financially free, the government imposes taxes on each withdrawal that you make before the time. 

Hence, you will be paying a penalty or withholding tax if you move your money from an RRSP to the TFSA.

The Withdrawal Amount of RRSPRate of TaxesRate of Taxes at Quebec
Till $5,00010%5%
From $5,001 to $15,00020%10%
$15,000 and above30%15%

If you are a non-resident in terms of taxes, you will pay a withdrawal tax of over 25% in Canada. If you are in Quebec, you will also pay the provincial withholding taxes. Additionally, you are obliged to also include your RRSP in taxable income or yearly income. Hence, at the end of the year, you may have to pay more taxes than expected.

Moving your money from RRSP to TFSA means you will be paying some withholding taxes as discussed earlier. For instance, if you take out $5,000 from your RRSP account, a 10% withholding tax will be imposed and now you have the contribution room for $4500. This example does not include Quebec.

Read: TFSA vs RRSP: How To Choose Between The Two?

When Should You Transfer Money from RRSP to TFSA?

If you come under the low-income tax slab and you have no other means for being imposed by a tax, you have the right to cash out an RRSP account, possibly without paying the extra taxes.

For instance, for 2022, you stand with a federal basic personal amount of $14,398, given that your income is $155,625. Hence, you can cash out up to $14,398 from your RRSP and not pay any taxes.

These amounts keep changing and are less than the federal amounts, then you might still get imposed with some federal taxes. 

However, since most of the tax credits are not included in this case, your tax payments are minimum. However, keep in mind that the bank will still impose taxes on your RRSP regardless of what your personal tax rate is. Therefore, while filing the taxes you can put in the claim for a tax deduction through box 30 in your T4RSP slip when you file for an income tax return. 

Moreover, you can have penalty-free RRSP cash out in case of a Home buyers’ Plan where you need the money to purchase a house or if you want to pay for education which comes under the Lifelong Learning Plan. You can not be allowed to transfer funds from RRSP to TFSA on the basis of these plans. 

Read: A Comprehensive List of High-interest Savings Accounts in Canada

Ways to Transfer RRSP to TFSA Without Penalty 

There are hardly any ways to move your RRSP to TFSA without penalty. But there are other accounts to which you can transfer your RRSP without paying taxes.

Transferring Your RRSP to a Different Bank

Tax is not imposed on your RRSP when you move it from one bank to another. You need to fill out Form T203 (or the form that your bank directs you to). After which, you can choose to transfer money from RRSP in the form of “cash” or “in-kind”.

You will still pay transfer-free. But it is much less than the taxes that you pay when you transfer your RRSP to TFSA. 

Read: What Are The Investment Risks You Need To Know In Canada?

Transfer Your RRSP to RRIF

You need to dissolve your RRSP and transform it into an RRIF or an annuity or take out the cash when you turn 71. You will not be imposed with taxes while your money grows unless you make a withdrawal.

Transfer Your RRSP to RDSP

You can convert your RRSP to RDSP (Registered Disability Savings Plan) without being imposed by the taxes. The contribution room is $200,000, and you should be careful not to exceed it. You will not get government grants on the amount that is transformed from an RRSP.

Read: Know These Terms for Retirement Planning in Canada


If you come under the low-income tax slab, you can cash out your RRSP and contribute it to the TFSA. If any taxes are withheld, you can file for their return when you file for tax return in the year. It is all about being meticulous in your planning. 

Devanshee Dave

Devanshee is a staff writer at She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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