Here, we focus on pension diversification, which can include non-traditional sources of income.
Can you split your income?
Here's a quick table of where you can and can't split your income. Tap a type of pension to continue learning why and how.
Distribution of DB pension income
When people think of pensions, they often think of defined benefit pensions (DB). DB pensions are calculated based on a formula that usually takes into account the annual income and the number of years as an employee when the employer provides the pension, as well as other factors, too. Most DB pensions won't pay out until age 55, but you may be able to take them out earlier.
DB pension is eligible for separation from your spouse or common-law partner. You can transfer up to 50% of your income to your spouse on your tax returns. You want a deduction and they say it's income. You can only divide pension income if it results in a net benefit, be it a reduction in gross income tax or an increase in government benefits.
Can you split the income from SERPs?
Supplemental executive retirement plans (SERPs) are non-registered plans for managers or other employees. It should also be noted that an additional DB pension, or top-hat executive pension, with payouts that exceed the maximum registered pension plan (RPP) will not be eligible for classification.
These pensions consist of a registered part and a non-registered part. The registered portion can be divided, but the unregistered portion can only be reported on the spouse's tax return. The distinction between registered and unregistered will be reported on the tax form issued by the government pensioner so it should be clear.
What about RRSPs?
Most people's retirement funds are in their registered retirement savings plan (RRSP) account, including defined contribution (DC) pensions. RRSP withdrawals are not eligible for annuity distributions. However, if you convert your RRSP to a registered retirement income fund (RRIF), subsequent withdrawals will be eligible from the time the account holder reaches age 65.
You don't have to convert your RRSP to a RRIF until December 31 of the year you turn 71, with withdrawals starting at age 72. But the ability to split RRIF withdrawals at age 65 may prompt someone to consider converting their account at age 64.
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