Split your retirement income and save a bundle

Shave thousands off your tax bill in retirement with income splitting.



From the April 2013 issue of the magazine.


retirement_sunsetSince 2007, retirees have reaped big savings through pension splitting. If your spouse has a generous employer pension or a lot of registered savings, you can attribute some of that income to yourself and some to your spouse, reducing the overall tax bill for the couple as a whole. Up to 50% of income from a pension plan can be split at any age, says Ross McShane. After 65, 50% of RRIF income can be split with a spouse. The added bonus is the lower-earning spouse can take advantage of the pension income tax credit, saving up to $300 a year. Here’s how it works:

Assume both spouses are age 65. Mike’s annual retirement income is $60,000 and Judy’s is $20,000. They pay a total of $11,000 in tax if they live in B.C., factoring in the pension income credit.

However if Mike splits some of his income so he claims $42,600 and Judy claims $37,400, they’d pay roughly $9,000 in tax, saving $2,000 a year. Multiply that by 25 years of retirement and the couple saves a total of $50,000.

One comment on “Split your retirement income and save a bundle

  1. Suggest you also look into splitting your CPP payments. It too is split-able but you must apply for that under the title Pension Sharing of Retirement Pension(s) Canada Pension Plan form SC ISP-1002A (2011-11-15) E. The net of it is, your payments will be split equally between you and your spouse so when you file your income tax it would be distributed 50/50. You CANNOT split it after the fact like income from a RRIF. .


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