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.