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Retirement is a time of massive changes, and taxes are one of many things that’ll change drastically. Tax experts say it’s imperative to create a plan years before your retirement to organize your savings in a way that minimizes your tax exposure.

Simply put, if you’ve never used the services of a tax expert before, you should consider it in the years leading up to retirement. An effective strategy that splits income between you and your partner can save tens of thousands of dollars in tax payments per year.

Open an RRSP for your partner

Let’s say you’re in a relationship in which you make all or most of the income. Instead of putting more money in your own registered retirement savings plan, you can put some of it in a retirement savings account controlled by your partner. When that money is withdrawn, your partner will be taxed.

This can be extremely beneficial if your RRSP withdrawals and other sources of retirement income (pensions, other investments) put you in a higher tax bracket than your partner. By spreading your income together, you can dramatically decrease total taxation by tens of thousands of dollars in some scenarios.

Income sharing with a pension

TurboTax accountant Jami Monte says a game changer in retirement is that, depending on the pension you have, you can split up to 50 per cent of your pension income with your partner. Similar to the RRSP tip above, this can further help balance out incomes if you are in a higher tax bracket in retirement.

Turning an RRSP into a RRIF

A registered retirement income fund (RRIF) essentially turns your RRSP withdrawals into pension income. Tara Benham, national tax leader with Grant Thorton, said turning an RRSP into a RRIF is a relatively straightforward process, and is mandatory once a person turns 71. However, you can do it when you reach 65.

Since an RRIF is pension income, up to 50 per cent can be split with your partner, as mentioned in the previous tip. This can further help balance out incomes to ensure the two of you are paying the least tax possible.

“Double dipping” on medical and disability credits

Ms. Monte says using an expense to claim two different tax credits is generally not possible. An exception, however, is made for retirees facing expenses that relate to a disability and to medical expenses. Expenses such as home remodelling for accessibility reasons can be deducted against both tax credits.

Create pension income for yourself if near retirement

Retirees who meet certain criteria are eligible for a $2,000 tax credit on pension income. However, not everyone age 65 or older is able to retire these days, and as a result might not be drawing from a pension. If you’re not drawing from a pension, you’re ineligible for that $2,000 pension tax credit.

Christine Van Cauwenberghe, head of financial planning at IG Wealth Management, said people age 65 or older who aren’t retired should consider creating a pension income by turning an RRSP into a RRIF and drawing $2,000 a year that way, or by purchasing an ordinary life annuity using their unregistered savings.

That way, you can enjoy a $2,000 tax credit on your overall income while still working.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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