Pension income splitting versus spousal RRSPs

PENSION INCOME SPLITTING CAN BE A GREAT WAY to reduce taxes.  Couples can split their income once their Registered Retirement Savings Plans (RRSPs) become Registered Retirement Income Funds (RRIFs).  The rules allow a pensioner to transfer up to one half of his or her eligible pension income to a spouse.  Sounds great, right?  So why keep that spousal RRSP? Spousal RRSPs may still offer some advantages, particularly if one spouse earns significantly more income than the other.

Income splitting with a RRIF

Under the pension income splitting rules, you must be at least age 65 and convert your RRSP into a RRIF in order to split income.  Regular RRSP withdrawals do not qualify for pension income splitting.  For people who retire early, a spousal RRSP provides more flexibility.  This is because you choose how much to contribute to the spousal RRSP, which has the potential to equalize retirement income and save taxes.

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