# Pension Income Splitting Plan



## coolbeans (Oct 2, 2013)

My wife and I have a rough plan to retire as early as when she is 50 (when I'm 48). She works in the public sector and has a defined benefit pension through PSPP, which can't be started until she is 55 (at the earliest). That means for the first 5 years of retirement she'll have to rely on other income sources. I would like to split taxable income as close as possible to 50/50 to be tax efficient. But, her DB pension eats up most of her RRSP contribution space. My plan is to open up a spousal RRSP for the wife and start contributing heavily to it so that those first 5 years of retirement income can come evenly from her RRSPs and mine. Once she starts her pension it's less of an issue. Then once I'm 65, I'll be able to income split if I have any surplus RRSP.

I'll also need to make sure the last contribution to the spousal RRSP occurs 3 calendar years prior to the first withdrawal to address attribution rules. I also understand that if we converted it all to a RRIF she could withdraw the minimum amount and avoid attribution rules. At age 50, the RRIF factor is 1/(90-50) = 2.5%. My spreadsheet has ~$275,000 in the spousal RRSP if I contribute all the way to her turning 50. 2.5% of that is only $6875 for the year. Ideally each of our incomes would come in at the top of the first tax bracket ($46,605 in Alberta). So that minimum RRIF withdrawal to avoid attribution rules won't work. 

From my calculations, if I start putting all of my available RRSP contribution space into a spousal RRSP for her, we might have just enough in the spousal RRSP to achieve a 50/50 taxable income during those first 5 years. It's kinda crazy that I need to start now with the spousal RRSP contributions (when I'm 33) to (maybe) have enough for when I'm 48 and retire. That's thinking ahead 15 years in order to be tax efficient for the first 5 years of retirement.

Does that seem like a good plan? Am I missing anything regarding the pension splitting options?


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## leoc2 (Dec 28, 2010)

I won't comment on your juggling of RRSP/RRIF contributions but what about this ... 
What if your wife saves all her income for the next 15 years into a non-registered account and you spend all of your income for living expenses. ETFs like HXS, HXT and HBB generate only capital gains which she can claim as income when she sells the ETFs at age 50.


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## ian (Jun 18, 2016)

Your incomes do not have to be 50/50 to be efficient. In reality, you the goal is for both of you to be in the same incremental tax bracket. That will give you a little wriggle room. You can also move non registered investment income between spouses via a spousal loan.

Why not spend some time with a tax specialist to map out a plan going forward? We did this for a number of year prior to retirement. The plan that we arrived at minimized our tax. It was well worth the investment. Then review that plan every few years as necessary when your circumstances change or the tax code changes.


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## coolbeans (Oct 2, 2013)

Leoc2:
I would like to take advantage of the tax-shelter of RRSPs/TFSAs before we'll worry about non-registered.

ian:
Agreed. I want to make sure we fill up the 1st tax bracket for both of us, before I start going into the 2nd bracket. A spousal loan is definitely an option.

It also occurred to me that my pension, which is defined contribution, may likely need to be transferred into a LIRA when I retire. I’ll have to wait until I’m 50 to then transfer 50% into a LIF and 50% into an RRSP. Then I’ll be able to start drawing from the RRSP in addition to up to the prescribed maximum LIF withdrawal rate to meet my income target.

From 48 to 50 I’ll need to rely on my small RRSP balance for income.


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