As you prepare for retirement, it’s important to know how to maximize your retirement income. One way to do this is by taking advantage of the Joint Election to Split Pension Income. This tax planning strategy allows eligible couples to split their pension income to potentially reduce their overall tax bill. Here’s everything you need to know about the Joint Election to Split Pension Income.
What is Pension Income Splitting?
Pension Income Splitting is a tax planning strategy that allows couples to split up to 50% of eligible pension income between them. The spouse with the higher income can allocate up to 50% of their pension income to the spouse with the lower income. The pension income splitting reduces the higher income spouse’s income, which can result in a lower tax bill for the couple as a whole.
Who is Eligible for Pension Income Splitting?
To be eligible for Pension Income Splitting, both you and your spouse must meet the following criteria:
- You must be residents of Canada.
- You must be married or in a common-law partnership.
- You must receive eligible pension income.
- You must not have elected for one spouse to be taxed on the combined pension income.
What is the Joint Election to Split Pension Income?
The Joint Election to Split Pension Income is a form that allows you and your spouse to elect to split eligible pension income. This form is filed with your tax return each year and must be signed by both you and your spouse.
What is Considered Eligible Pension Income?
Eligible pension income includes income from a registered pension plan, annuity payments from a registered retirement savings plan (RRSP), and payments from a registered retirement income fund (RRIF). Other types of income, such as Canada Pension Plan (CPP) or Old Age Security (OAS) payments, are not eligible for pension income splitting.
How Does Pension Income Splitting Benefit You?
The main benefit of pension income splitting is to reduce the overall tax bill for the couple. By splitting the pension income, the higher-income spouse can lower their taxable income, resulting in a lower tax bracket and tax bill. This strategy can help keep more money in your pocket during retirement.
How Do You File the Joint Election to Split Pension Income?
To file the Joint Election to Split Pension Income, you and your spouse must complete and sign the form and attach it to your tax return. The election must be made annually, and both spouses must agree to split the pension income.
Conclusion
The Joint Election to Split Pension Income is a valuable tax planning strategy that can help eligible couples reduce their overall tax bill during retirement. If you’re eligible, be sure to take advantage of this opportunity and file the necessary forms with your tax return each year. Consult with a qualified tax professional to ensure that you’re taking advantage of all the available tax planning strategies to maximize your retirement income.
If you’re looking for help with your taxes or have any questions about the Joint Election to Split Pension Income, JTT Accounting is here to help. Contact us today to learn more about our accounting services.