RRSP Meltdown Strategy Calculator Canada

How the RRSP meltdown works

You borrow to invest in a non-registered portfolio, deduct the interest, and withdraw about the same amount from the RRSP each year. The withdrawal is taxable, the interest deductible, and the two offset, so net income and tax stay the same while the plan shrinks.

The calculator projects two paths, leaving the plan alone and running the meltdown, and reports the annual deductible interest, the withdrawal it supports, the ending balance on each path, the tax on deregistering what is left, the extra OAS recovery tax any additional draw would cost, and the after-tax position on each side.

Why a smaller plan can be worth having

An RRSP defers tax rather than removing it, and withdrawals are taxed at whatever your rate is when the money comes out. Three things can push that rate up: RRIF minimums that start the year after conversion and rise with age; the OAS recovery tax, which acts like an extra marginal rate above its threshold; and the final return, where the remaining balance is generally income in one year and can reach the top bracket. A meltdown moves money out at today’s rate, at a pace you choose. Success is measured by how much smaller the final tax bill becomes.

A worked example

An Ontario 60-year-old with a $400,000 RRSP and $45,000 of other income borrows $150,000 at 6.5% for ten years, assuming 5% growth in the RRSP and 6% in the portfolio. The $9,750 of annual interest supports a $9,750 withdrawal each year, $97,500 in total, at no net tax. At the end the RRSP is about $522,792 instead of $651,558, and the tax on deregistering it falls from about $321,685 to $252,757, a saving of about $68,928. After repaying the loan and tax on the gain, the portfolio is worth about $102,112, and the overall net benefit is about $42,274.

Because the portfolio is assumed to earn less than the loan costs, part of that is eaten by leverage. With the portfolio return set equal to the 6.5% loan rate, the net benefit is about $53,108, which isolates the tax effect.

The mechanics

The loan must be an investment loan and the money must actually be used to earn income from property. Deductibility follows the use of the funds, not the label on the account, so keep a clear paper trail.

The interest is claimed as a carrying charge and reduces net income, the figure the OAS recovery tax is measured against, which is why a matched meltdown does not trigger it.

The withdrawal is added to income, with tax withheld at source and credited when you file. RRSP room used is not restored.

The portfolio compounds, and at the end of the horizon the calculator sells it, repays the loan and taxes the capital gain at the inclusion rate.

Reading the result

The net benefit combines the deregistration tax saved on a smaller plan, the after-tax value of the borrowed portfolio after the loan is repaid, any cash left from drawing more than the interest, and the difference in annual tax between the paths. It is partly a market result: if the portfolio beats the loan rate, leverage helps, and it can work in reverse. Set the two rates equal to see the tax effect alone. A meltdown run for only a few years moves little; run from early retirement to 71, the same annual withdrawal leaves a much smaller plan.

The OAS recovery tax

From 65 the recovery tax takes back part of Old Age Security for every dollar of net income above the threshold. Draw more than the interest and the excess lands in net income with nothing to offset it, so for someone near the threshold the extra draw costs their ordinary rate plus the recovery rate. A 63-year-old with $80,000 of other income drawing $20,000 a year above the interest, for example, pays about $5,612 of extra recovery tax over the horizon. The calculator applies the threshold, rate and maximum pension across the whole period.

What this does not model

The projection assumes an interest-only loan at a constant rate for the full term, steady returns, unchanging other income, full OAS from 65 and no RRIF minimums in the baseline. It leaves out provincial income-tested credits, the pension income amount and pension splitting, spousal RRSPs, and the simpler alternative of measured withdrawals in low-income years without borrowing, which is often better and worth testing first. Loan rate, returns and horizon are your inputs; every tax rate, bracket and threshold comes from the parameters shown with the results.

Every figure is an estimate. Leveraged strategies carry real risk and the interest deduction depends on facts specific to you, so use this to frame the question and take advice from a qualified professional before acting.

About This Tool: RRSP Meltdown

RRSP meltdown: use this tool to get an instant, accurate estimate. The figures follow official CRA guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.