Since 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.