4 Retirement Tax Hacks You Should Know

Tax is a serious drag in retirement and although you can't avoid it, you may be able to pay less. Let's look at some "Retirement Tax Hacks" you should know about.

But first remember this: Tax planning is really important in retirement but is only one component to a more complex financial plan that nets you the best results. Studies have shown the clear benefits of a comprehensive planner. Other considerations are important like estate, investments and risk planning. If you're looking for a passionate planner, who puts your interests first and works with you collaboratively throughout your life, let's grab a coffee! Email [email protected]

Series T

What on earth is Series T?

It's a type of fund and T stands for TAX. When you have savings in a Non-registered account, you have to pay tax each year on the growth.

Tax in Canada can come as Interest (fully taxable), Dividends (less taxable) and Capital Gains (least taxable).

A Series T fund works to push everything to capital gains. This tax is not due until all of the principal of your investment has been drawn and you start to pull out the growth portion.

Now, not only does this offer a better tax rate (half that of interest!), it keeps your investment income down for years. During this time, that lower income can help you enjoy better eligibility for benefits based on income brackets. Sometimes this can result in a serious cash-flow source previously not available.

TFSA

Most people know of or have a TFSA, but what is the best way to use this in retirement?

First, it should really be called a TFIA (Tax Free Investment Account) because you can hold the same sort of stuff in here as an RSP.

Although RSPs are a great way to defer taxable income to later years, as soon as you put it in, you have to pay tax on ALL of it on the way out.

What does this mean? Let's say you just sold your primary residence to fund your retirement. This is tax-free money. Put it in an RSP (assuming you have the room) and you've just made it all taxable, put it in a non-registered account and you pay taxes on the growth every year, but put it into your TFSA and enjoy tax free growth and tax-free withdrawals.

This is a great place to leave a liquid pot of money for emergencies or a spur of the moment trip.

Dividends

Remember how I said dividends are taxed lower than interest?

One wonderfully simple way to enjoy this feature is through dividend producing investments.

Because in the eyes of the CRA, a company has already payed corporate tax on this money, the dividends that flow to shareholders are reduced.

Sometimes this simple approach is just what the doctor ordered - steady, tax efficient cash-flow with no fuss.

Incorporation

There are a myriad of tax opportunities to a corporation, especially if you are moving towards retirement. Instead of going deep on this right now (we can do that together - message me), I'll offer one big tip.

If you sell your company as an asset sale, you're going to pay tax, but if you sell it's shares you could pay none. If it's a privately held, Canadian controlled corporation, and meets certain requirements, it is eligible for the Lifetime Capital Gains Exemption. You can't beat zero tax!

If you are not sure if you fit this criteria, a planner like myself, collaborating with a good Accountant, can help you make sure you do the right things to qualify.

So there are 4 Retirement Tax Hacks to get you started. If you want to go deeper and see what else a comprehensive plan could do to your retirement income, I am an open book. Shoot me an email or message.

*This article is for informational purposes only and does not replace professional advice.