By Julie Cazzin with Allan Norman
Q: I just turned 65 years of age and still work full time. To take advantage of the $2,000 pension tax credit, I need to convert at least some of my registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) so that I can withdraw $2,000 each December as qualifying pension income. My question is, if I set this up today, can I withdraw the $2,000 and claim it as qualifying pension income for 2023? Also, my wife Dorothy is 63 years old. Can RRIF pension income be split with her? Or does she need to be 65 years of age? What’s the best way for me to take advantage of this tax credit for my wife and I at this point?
FP Answers: James, that’s a good question. I find there is some confusion around the pension tax credit. A lot of people think they should automatically convert all or some of their RRSP to a RRIF and draw $2,000 per year to claim the pension tax credit once they enter the year they turn 65. Some people even think claiming the pension tax credit is a way to get $2,000 out of their RRSP/RRIF tax free. Neither of these thoughts are necessarily correct. Let me quickly address your questions and then I’ll dive a little deeper into the pension tax credit.
You’re right, in the year you turn 65, you can claim the federal $2,000 pension tax credit even if you are still working. There is a list of what qualifies as pension income, and RRIF income qualifies, which is the reason you want to convert some of your RRSP to a RRIF. I presume you are not converting all your RRSP holdings to a RRIF, because the minimum RRIF withdrawals will force you to draw more than $2,000 per year from your RRIF, which is more than what you can claim for the pension tax credit.
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