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RRIF - income splitting
April 16, 2014
11:48 am
kanaka
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Both my wife and I will be 65 this year. We have been doing RRSP withdrawals for a couple of years just to wind them down. Income splitting has worked well for us but now that we will both lose our CPP bridges and will basically be replaced by OAS. So less income to split. I understand that if I take all or parts of our RRSP funds and convert to RRIF that money can be income split at age 65. So if we convert to RRIF, withdraw after both of our birthdays this year do those funds become eligible for splitting? Or do we have to wait til next year?

Fill me in? Any other info about RRIF income splitting would be appreciated,

THANKS PETER

April 16, 2014
2:46 pm
Loonie
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Everything I have read says that once you turn 65, you can split your RRIF income with your spouse. I don't see any need to wait until next year. Generally speaking, with CRA, various rules refer to the year in which you turn a certain age as applying to the whole year.
I don't think you would necessarily BOTH have to do the conversion, unless you wanted to. If you are splitting it, then the money is only going to move in one direction. The recipient doesn't have to convert or be of any particular age to receive.
You can split up to 50% of it.
You BOTH have to fill out Form T1032 when you do your income tax, but you don't have to do anything in advance. There is withholding tax, which CANNOT be reduced at source in view of intention to split.
"The withholding tax that applies to this income must be assigned in the same proportion as the income itself. Clients can decide on an annual basis how much income they wish to split." I think the assignation refers to filling out your tax forms.
Thus, you can dicker with the percentage each year to make it come out where you want it.
When both parties are 65, they can both claim the pension income credit of $2000, even if one of them only has this income from splitting (assuming it is not already being claimed from another eligible source).
If you are paying tax in instalments, you can base the instalments on intention to split.
If your withholding tax is greater than what it will be in the end, you might consider making the withdrawal at the end of the year. Consider what you are intending to do with the remaining money in the RRIF before you do the conversion, as it may affect when you decide, precisely, to do it.
Quotes and ideas from The Boomers Retire, 3rd edition, by Lynn Biscott, pp.189ff. This is a solid book, written for financial planners as well as lay people.

April 17, 2014
6:12 pm
hdubya
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Loonie's answer is excellent.

You may want to take a look at this website as well:
http://retirehappy.ca/are-you-.....e-pension/

April 17, 2014
7:46 pm
kanaka
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Thanks. I use Turbo Tax and I see it automatically fills in the Form T1032 and helps you select the best number to do the split with. I just don't see where the magic comes from to ascertain age or the RRIF income which I assume is on a different numbered/named T slip.

April 17, 2014
8:35 pm
Loonie
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I'm not sure I understand your last question, kanaka, but will try to respond.
There is another T slip which comes from the financial institution which indicates your RRIF income and the amount withheld at source. This is quite separate from the T1032, which is the Election to Split form.
Your age would be on your T1. Recipient spouse's age is irrelevant.

April 17, 2014
9:38 pm
kanaka
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Lol. Not really a question. Yes the T1 has your birthdate and the RRIF withdrawal is on a T 4RIF. I plan on seeing an accountant in regards to a strategy for minimizing income in regards to RRSP to RRIF and then withdraw. And wether both my wife and I should do RIF or just one of us, we have both been on pensions so we have even receiving the pension income credits.

April 18, 2014
12:23 am
Loonie
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Sounds like a good idea! Good luck. Let us know if you learn anything useful.

April 18, 2014
8:10 am
Rick
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hdubya said

Loonie's answer is excellent.

You may want to take a look at this website as well:
http://retirehappy.ca/are-you-.....e-pension/

I noticed that the website says you can take advantage of the tax credit if you are at least 55 and receiving pension income. I did not know that. Does that mean if I collect my company pension at 61, I'll be able to claim the benefit for 10 years???? sf-confused

April 18, 2014
8:48 am
kanaka
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Rick said

hdubya said

Loonie's answer is excellent.

You may want to take a look at this website as well:
http://retirehappy.ca/are-you-.....e-pension/

I noticed that the website says you can take advantage of the tax credit if you are at least 55 and receiving pension income. I did not know that. Does that mean if I collect my company pension at 61, I'll be able to claim the benefit for 10 years???? sf-confused

Not sure why you are saying for 10 years which would be at your age of 71. If you have a company pension I would say you will receive the the pension credit forever. I just reviewed my income tax as I have not sent it yet as I have to pay and will leave that till the end..lol...but I see I have a 2000 federal tax credit for pension income and another 1000 provincial tax credit (BC).

Both my wife and I have company pensions. We have both done RRSP withdrawals and reinvested in TFSA and the rest into GIC's and have not gone into a higher tax bracket nor do we have any RRIF accounts BUT plan to have in the fall before we do any more withdrawals.

Are you confusing the RRIF withdrawals being able to be eligible for income splitting between the ages of 65 and 71?

Which leads to another question is RRIF income after the age of 71 still eligible for income splitting?
According to this, splitting RRIF is forever too. http://www.theglobeandmail.com.....e17179917/

April 18, 2014
8:52 am
kanaka
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Also you will see other examples, based on different strategies, on how to make sure you don't lose out on the credit.

See here.

http://retirehappy.ca/are-you-.....e-pension/

Peter

April 18, 2014
9:20 am
Rick
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Maybe I am thinking of the 2000.00 that can be withdrawn tax free from an RSP between the ages of 65-71.

April 18, 2014
9:34 am
kanaka
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Hi Rick. You might want to verify if you will get the 2000 credit from an RRSP withdrawal. As per this article you have to move RRSP to RRIF and then withdraw from the RRIF.

http://retirehappy.ca/are-you-.....e-pension/

April 18, 2014
10:32 am
Rick
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I believe that the income from the company pension plan qualify s
"1 Income from a superannuation or pension fund"

April 18, 2014
11:40 am
Loonie
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I don't believe there is any tax-free withdrawal directly from RRSP, ever. You have to pass it into a RRIF first, to get the pension tax credit, which effectively nullifies the tax on that amount. Be careful about how you make your withdrawals.
Yes, company pensions count for the $2000 deal, so you would not have to use RRIF for that purpose.

April 18, 2014
1:13 pm
hdubya
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@Rick - company pension qualifies
@Loonie - correct - RRSP withdrawals do not qualify for the pension credit; however, you can convert part of your RRSP to a RRIF if you're looking to defer income yet would like to save on taxes.

Aside from tax credits, you may want to take a look at your overall financial picture to see what order of plans to use with respect to net income and estate planning. Different savings vehicles / plans have different levels of flexibility so evaluate everything carefully before making a move. Happy Easter everyone.

April 18, 2014
8:53 pm
kanaka
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hdubya said

@Rick - company pension qualifies
@Loonie - correct - RRSP withdrawals do not qualify for the pension credit; however, you can convert part of your RRSP to a RRIF if you're looking to defer income yet would like to save on taxes.

Aside from tax credits, you may want to take a look at your overall financial picture to see what order of plans to use with respect to net income and estate planning. Different savings vehicles / plans have different levels of flexibility so evaluate everything carefully before making a move. Happy Easter everyone.

Savings vehicles........such as?

April 21, 2014
5:22 pm
hdubya
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Different savings vehicles provide different sources of income: Non-registered (cash) accounts, RRSPs/RRIFs, LIRAs/LRSPs/LIFs, OAS, CPP, GIS, Pensions (DB&RPP, DC&PRPPs)... just to name a few... and each have different levels of flexibility, estate values, and tax implications. I won't go into detail as every individual is different. A few examples of things to keep in mind:
- Converting interest income to pension income with GICs from insurance companies in non-registered accounts if it makes sense
- Considering holding dividend-heavy equities in TFSAs / using swap based ETFs to defer taxes to reduce clawbacks
- Keeping in mind that on the other side of the RRSP/RRIF is a potential tax liability

Hope it helps...

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