How income splitting can save taxes

How income splitting can save taxes

Avoid an OAS clawback with this strategy

Income splitting

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One mistake many retirees make is not taking out enough money to maximize income splitting (especially if it helps them avoid an OAS clawback), says accountant Paul Panabaker. Up to 50% of the money withdrawn from a RRIF can be transferred from a higher-income spouse to a lower-income spouse to reduce taxes and to hold onto more government benefits. So to get the biggest break, make sure that enough is taken out to get both you and your spouse to the top of a lower tax bracket. Remember that a pension can also be split with a spouse, so if you do get one, then RRIF splitting may not be the right move as it could push you into a higher bracket.

The bottom line: This strategy could save you thousands, depending on how much a higher-earning spouse can reduce his or her taxable income.

More tax tips here.