Save Taxes by Splitting Your Retirement Income



Income splitting for retirees can help a household use more of their savings for their lifestyle expenses and less for paying in taxes. For example, if a couple needs $60,000 net in retirement income, they would be able to make their savings last longer by splitting their net income to $30,000 each. In this article, I will talk about 3 ways that income could be split in your retirement years.


Spousal RRSPs

For individuals who are under the age of 65, spousal RRSP’s are very beneficial for tax purposes. Spousal RRSPs allow an individual who is in the higher tax bracket than his/her spouse, to contribute to an RRSP under the spouse’s name. During retirement when the money is withdrawn, the spouse who owns the Spousal RRSP (and is in the lower tax bracket) will be taxed at a lower amount. For example, if John and Lisa are a couple and John has a marginal tax rate of 40% compared to Lisa who has a marginal tax rate of 22%, it would be beneficial if John contributes to a spousal RRSP under Lisa’s name. While contributing, John would receive a tax advantage and while withdrawing, the income will be taxed on Lisa’s marginal tax rate, which would most likely be lesser than A’s marginal tax rate.


The only way to take advantage of a spousal RRSP is if it’s planned early on. It would not be super beneficial if someone started contributing to a spousal RRSP when they are 60 years of age. The key is time. Start Planning.


Pension Splitting

Individuals who are 65 years or older, can split their pension income up to a maximum of 50% from the following accounts:


  1. Registered Pension Plan

  2. RRSP annuity

  3. Registered Retirement Income Fund (RRIF)

  4. Deferred profit-sharing plan annuity.


The income from these accounts will still be received by the same individual (the owner of the account), the only difference by using this strategy will be splitting income for tax purposes.


Planning for this strategy could be done closer to or during the retirement years since individuals under the age of 65 cannot split their income from a RRIF. The couple can change the amount their income is split in each year.


CPP splitting

CPP splitting is very similar to Pension splitting. The only difference is that the individuals can start with the split from the age of 60 for CPP. Both the partners must be eligible for CPP in order to split their CPP income. Also, the way their income is split has to be 50-50 and not in any other way. This is beneficial for couples where the higher marginal tax bracket spouse is also receiving a higher CPP than the other spouse. For example, if John and Lisa are a couple and John has a marginal tax rate of 40% compared to Lisa who has a marginal tax rate of 22%. If John receives a CPP of $1,000 and Lisa receives a CPP of $500, they could split their CPP into $750 each.


- Jai Gandhi, Financial Planning Assistant

Jai Gandhi is a Financial Planning Assistant at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.


This information has been prepared by Jai Gandhi who is an Financial Planning Assistant for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.

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