It’s much better to think about ways to reduce your 2018 tax bill throughout the year but the year-end can be a good time to review your income, deductions and tax credits for the year. The following tax tips for year-end relate to retirement income whether you are retired or dreaming and saving for retirement.
- It’s never too early to contribute to your RRSP. You have until March 1, 2019 to make a contribution to your RRSP for a deduction on your 2018 tax return, but making it sooner will benefit your retirement long term.
- Withdraw funds when your income is lower. If you need to withdraw funds from your RRSP and your income in 2018 is lower than it will be in 2019, withdraw in 2018. RRSP withdrawals are fully taxable.
- Withdraw funds from your TFSA earlier. If you need to withdraw funds from your TFSA you are allowed to re contribute the same amount in the calendar year following the year you withdraw. That means, if you’re planning on withdrawing early in 2019, it's better to consider withdrawing late in 2018. This will avoid you having to wait until 2020 to re contribute the amount withdrawn.
- Convert to a RRIF before the end of the year end if you turned 71 this year. Converting your RRSP to a RRIF by the end of the year when you turn 71 is not an option. However, you do have the option of calculating the minimum income amount based on the age of your spouse if you spouse is younger. This maximizes your tax deferral going forward.
- Converting to a RRIF before the end of the year may be beneficial. If you are over the age of 65 and without a company pension plan, setting up a RRIF to pay out just $2,000 annually would enable you to take advantage of the pension credit which will make the withdrawal tax free. Annuity payments from an annuity purchased with your RRSP assets are also eligible for the $2,000 pension credit.
These are just a few of the more general tips related to retirement planning.
Your financial planner can provide more detail based on your particular situation. If you're not working with a Certified Financial Planner, please accept that as an additional tip for the coming year !