Plan now to minimize OAS clawback later
Ever wonder if you’ll be affected by Old Age Security (OAS) clawback? To give you an idea, OAS benefits are reduced for the July 2018 to June 2019 period when net income for 2017 exceeds $74,788.
To minimize OAS clawback, you need to reduce net income. During retirement, an effective strategy is splitting pension income. But several strategies, including the following, can be initiated before retirement arrives.
Use a spousal RRSP
With pension income splitting, you can split up to 50% of eligible pension income. But with a spousal Registered Retirement Savings Plan (RRSP), you can place a greater amount of retirement income in your spouse’s hands and reduce your own income.
Invest in corporate class funds
Corporate class funds have lower taxable distributions than traditional mutual funds. You pay less tax on non-registered investments in income-earning years and reduce taxable income during retirement.
Maximize TFSA savings
Tax-Free Savings Account (TFSA) withdrawals are not taxable income and cannot reduce OAS benefits.
Make early RRSP withdrawals
If you retire early, you could withdraw RRSP funds while in a lower tax bracket. This strategy will reduce your minimum Registered Retirement Income Fund (RRIF) withdrawal, reducing net income.
Realize capital gains
If you plan on selling vacation property, rental property or other significant assets in the near future, you may want to sell before OAS pension begins. Triggering large capital gains while receiving OAS benefits could result in clawback.