Tax Planning for Canadians Turning 65

Jerome Roth

Maximize RRSP contributions

If you are in a middle to high tax bracket ($90,000 + before tax) consider catching up on unused Registered Retirement Savings Plan (RRSP) contribution room

Consider contributing to a spousal RRSP to equalize income in retirement

It is not usually recommended to borrow money at this age to purchase RRSP’s

No Pension? Turn $50,000 of your RRSP into a RRIF

Are you utilizing the $2,000 pension tax credit?

If not, you can withdraw $2,000 from a Registered Retirement Income Fund (RRIF) and use the pension tax credit to offset the income tax

The annual RRIF withdrawal rate at age 65 is 4% ($50,000 x 4% = $2,000)

From age 65 to 71 you could withdraw $12,000 ($2,000 x 6 years) tax free by starting part of your RRIF early

Maximizing contributions to TFSA

  • Contribute to a Tax Free Savings Account (TFSA) after RRSP’s are maximized or if you are in a lower tax bracket (less than $90,000 before tax)
  • Current annual limit is $6,000, plus any unused limit from prior years
  • TFSA amounts can be withdrawn any time, but there are time limitations on putting the funds back into the TFSA

Defer collecting OAS

  • Old Age Security (OAS) will be clawed back with taxable income starting at $75,000
  • OAS monthly payment can be increased by 36% (0.6% per month) by deferring it until age 70 or until your income drops
  • Deferring the OAS is only available if you have not started collecting or have received OAS for less than 6 months

Defer collecting CPP

  • Deferring starting Canada Pension Plan (CPP) after age 65 will increase the monthly benefit by 0.7% per month (42% maximum)
  • There is no clawback on CPP so the advantage of deferring is the increased benefit
  • Deferring the CPP when you are in a higher tax bracket until a time when you are in a lower tax bracket will also be a permanent tax savings

Withdrawing RRSP money

  • Consider withdrawing funds from your RRSP to supplement cash flow while you defer the OAS and CPP benefits
  • Deferring the OAS or CPP will increase the monthly benefits you receive and may increase your overall benefits

Please call us to discuss these or any other retirement planning ideas and feel free to pass this information on to other seniors.




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Posted: 1/16/20