RRSP/RRIF Meltdown Strategies Explained (Canadian Financial Summit 2025)

Ever wondered how you can get the money out of your RRSP with a minimum of tax?

RRSP/RRIF Meltdown Strategies can allow you to withdraw from your RRSP or RRIF with little or no tax.

However, there are some tricky complications, several options, and these strategies are not for everyone.

In my latest video for the Canadian Financial Summit you’ll learn:

• How does the RRSP/RRIF meltdown strategy help you withdraw from your RRSP with minimum tax?
• What does the traditional RRSP/RRIF Meltdown Strategy look like?
• Why should it be called the RRIF Meltdown Strategy, not the RRSP Meltdown Strategy?
• Why are self-made dividends the secret to an effective RRIF Meltdown Strategy?
• What are the 4 tricky complications?
• Why does the traditional RRIF Meltdown not melt your RRIF down?
• What is the problem with starting it before you retire?
• What is the problem with starting it when you retire?
• What are the 3 main RRIF Meltdown Strategies?
• What are the 4 issues for implementing the RRSP/RRIF Meltdown Strategy effectively?
• What are the 6 steps to implementing the RRSP/RRIF Meltdown Strategy effectively?

How does the RRSP/RRIF meltdown strategy help you withdraw from your RRSP with minimum tax?

• Withdraw from RRSP or RRIF with minimal tax by borrowing to invest to get an offsetting tax deduction. The investment loan interest offsets tax from RRSP withdrawal.
• Withdraw from leveraged non-registered investments for your desired cash flow. You choose the exact amount you want that is sustainable long-term.
• Minimize tax by focusing on deferred capital gains (not income). Deferred capital gains are the lowest taxed type of investment income. Self-made dividends are the key to minimum tax by selling a bit of your non-registered investments every month to provide the cash flow you need.

What does the traditional RRSP/RRIF Meltdown Strategy look like?

Why should this strategy be called the RRIF Meltdown Strategy, not the RRSP Meltdown Strategy?

• It is usually best to convert all or part of your RRSP to a RRIF before starting this strategy. The amount in your RRIF is melted down.
• RRSPs do not generally allow automatic monthly withdrawals and there are fees for a “partial deregistration” for every RRSP withdrawal.
• RRIF withdrawals are generally automatic monthly withdrawals with no fees.

Why are self-made dividends the secret to an effective RRIF Meltdown Strategy?

• The secret to an effective RRIF Meltdown Strategy is that tax on the cash flow from your non-registered investments should be much lower than tax on RRIF withdrawals.
• Invest for growth to be confident the long-term return after tax is higher than the loan interest.
• Minimize tax by focusing on deferred capital gains (not income) – the lowest taxed type of investment income.
• Self-made dividends are the key to minimum tax by selling a bit of your non-registered investments every month to provide the cash flow you need. Only 50% of the gain portion of the amount you sell is taxable. This is essentially nothing initially. Usually, tax is only 5-10% even after quite a few years.
• Many people think that the investments must pay dividends for the interest to be tax deductible, but they don’t. Interest is deductible if your investments are theoretically capable of paying income. Almost all stock market investments are generally acceptable. I studied “Smith Manoeuvre with Dividends” strategy and found that you generally need to earn a long-term return about 1%/year higher if you get dividends (or income from options strategies) to have the same long-term after tax return as self-made dividends.
• You choose the exact withdrawal you want for your desired retirement lifestyle.
• Self-made dividends are better than ordinary dividends in every way.

What are the 4 tricky complications?

There are 4 tricky complications.

1.  Withholding tax.

• To have your RRIF withdrawal pay your investment loan interest, try to avoid withholding tax.
• You can choose no withholding tax on the minimum RRIF withdrawal.
• Any RRIF withdrawal above the minimum will have withholding tax based on the annual withdrawal. It is 10% if the annual withdrawal is under $5,000, 20% if it is between $5,000 to $15,000, and 30% if it is above $15,000.
• Withholding tax means you should pay part of your investment loan interest from your cash flow, but you get that amount back as tax savings on your tax return.

2.  Rising minimum RRIF.

• The minimum required RRIF withdrawal rises every year based on a formula.
• To have your interest deduction offset your RRIF withdrawal, you would have to increase your investment loan every year.
• Here is the minimum RRIF at various ages:

• Your options with a rising minimum RRIF:

o   Be happy with the interest deduction offsetting the RRIF withdrawal from year 1, but not the increasing RRIF withdrawals.

o   Get a larger investment loan every 5 or 10 years with interest that would offset the increased RRIF withdrawal, so that the strategy offsets the tax on your RRIF withdrawal for quite a few years.

o   If your investment loan is a secured credit line on your home, you could increase it every year.

o   My advice: Don’t worry about a perfect offset. The interest deduction could offset more or less than the RRIF withdrawal. You save tax anyway.

3. Investment loan might slowly become non-deductible – Smith/Snyder Calculation.

• When you take self-made dividends (or any withdrawals) from your non-registered investments, the investment loan can slowly become non-deductible.
• Interest is deductible based on the “current use” of the borrowed money. For example, if you borrow to invest, but then cash in the investments and spend it, the loan interest is no longer deductible.
• Withdrawing from your investments for your lifestyle can reduce the interest deduction, however it remains deductible if the withdrawal is either taxable or used to pay the investment loan interest.
• To keep your investment loan fully tax-deductible, withdraw only the amount of your interest or less from your non-registered investments. Note it is the RRIF withdrawal that is paying the interest, but keeping the non-registered withdrawal for your cash flow less than the interest keeps your investment loan fully tax deductible.
• With self-made dividends, you can withdraw the exact amount you want for your lifestyle. This is normally more than the investment loan interest. This means you would need to do the “Smith/Snyder Calculation” to calculate how much of the interest is still tax-deductible. It is somewhat complex. Essentially, it tracks the amount of your investment loan that is deductible by reducing it by withdrawals that are not taxed as capital gains or dividends, or used to pay the investment loan interest.

4. Large investment loan is required to make it most effective.

• You need a large investment loan to make this strategy effective.
• To offset the RRIF withdrawal, you generally need a loan about the same size as your RRIF.
• To “melt down” your RRIF, the loan may have to be quite a bit larger than your RRIF.
• A large investment loan must be suitable for you based on your risk tolerance. It is advisable to commit to a minimum of 20 years for the RRIF Meltdown Strategy for you to have a high chance of success with this strategy. This is because the stock market is generally reliable over long periods of time.
• You have to qualify for a large investment loan. Ideally, this could be from a secured credit line against your home, since that is the lowest interest rate. If you get an investment loan, make sure it is a No Margin Call Loan. A margin call any time in the next few decades can wipe out all the benefits of this strategy, so make sure there is no margin call risk.

Those are the 4 tricky complications.

Why does the traditional RRIF Meltdown NOT melt your RRIF down?

• The minimum RRIF withdrawal is lower than the long-term returns of the stock market until you are well into your 80s.
• With the Traditional RRIF Meltdown Strategy, you usually withdraw the minimum RRIF. If your RRIF investments are mostly or all equity investments (in the stock market), your RRIF should continue to grow over time.
• If your investments are balanced (stock & bonds) or much more conservative, then you likely do not have the risk tolerance for a large investment loan.

What is the problem with starting it before you retire?

• The RRSP meltdown strategy is generally not worth doing if you are contributing to your RRSP at the same time.
• Withdrawing from your RRSP while you are still contributing does not make sense. The withdrawal partly offsets the contribution & you lose the RRSP contribution room. For example, if you are contributing $20,000 to your RRSP while withdrawing $10,000 for the RRSP Melt Down Strategy, you would be better off contributing $10,000 to your RRSP and using $10,000 from your cash flow to pay the investment loan interest. This is the same cash flow and the same tax deduction, while keeping more of your RRSP contribution room.
• If borrowing to invest is a suitable strategy for you, it is best to start it long before you retire. For example, you could start the Smith Manoeuvre decades before you retire. Capitalize the interest or pay it from your cash flow. Continue to make your RRSP contributions as normal based on your Financial Plan. Don’t withdraw from your RRSP or start your RRIF Meltdown while you are contributing.

What is the problem with starting it when you retire?

• Taking a large investment loan when you retire may not be suitable for you. This is especially true if you have never borrowed to invest before that.
• For this strategy to benefit you, the investments need a long-term after tax return higher than the interest after tax. This generally means stock market investments which go up & down, and sometimes have large declines. This strategy only makes sense for you if you will stay invested when your investments fall.
• It is advisable to commit to a minimum of 20 years if you do the RRIF Melt Down Strategy. This gives you a high chance of success, because the stock market has been reliable over long time periods over 20+ years in history.

What are the 3 main RRIF Meltdown Strategies?

Traditional, Tax-Efficient & Effective RRIF Meltdown Strategies.

1. Traditional RRIF Meltdown Strategy

Interest deduction offsets the starting RRIF withdrawal for year 1.

RRIF rises more slowly, but is not melted down.

This is like the simple example I previously showed.

2. Tax-Efficient RRIF Meltdown Strategy

Interest deduction offsets the rising RRIF withdrawal over the years.

Set your RRIF withdrawal based on the minimum RRIF 5 or 10 years from now, or the average minimum RRIF over your retirement. This means 5%-7%/year RRIF withdrawal.

Your investment loan would need to be larger.

3. Effective RRSP RRIF Meltdown Strategy

Investment loan large enough to melt down your RRSP/RRIF.

Set your RRIF withdrawal high enough to melt down your RRIF during your retirement. This means a withdrawal rate roughly 15%/year.

Your investment loan would need to be much larger.

What are the 4 issues for implementing the RRSP/RRIF Meltdown Strategy effectively?

• The RRIF Meltdown Strategy needs to make sense for you. It is best done as part of a full Retirement Income Plan and as a continuation of leverage strategies started earlier.
• There are more factors in deciding on the optimal RRIF withdrawal than just making this strategy work. The same is true with whether or how much you should borrow to invest.
• If borrowing to invest is a suitable strategy for you, you should start it long before you retire.
• The most effective method is to start a version of the RRIF Meltdown Strategy when you retire after doing Smith Manoeuvre or leveraging years before retirement.
• The Smith Manoeuvre capitalizes the interest, or you pay it as long as you are working.
• When you retire, keep your investment loan and use your RRIF to pay the interest.

What are the 6 steps to implementing the RRSP/RRIF Meltdown Strategy effectively?

Ed