Minimize taxes

To minimize taxes, consider the following:

• Convert a portion or the total of your RRSP, locked-in RRSP or LIRA if you do not get a tax credit for pension income.

Conversions are ideal (even if you don't need liquidities) when you do not get a tax credit for pension income. Under federal law, as of 65, you can get a tax credit on the first $2,000 withdrawn annually from a RRIF/LIF. (Note: In Quebec, this credit applies to an amount of $1,500 and is available for any age group but it is reduced for those with a joint net income exceeding $29,290 (2007). The reduction rate is 15%, to the extinguishment of the $1,500 credit added to that for those over 65 and those living alone.)

• When you convert a joint RRSP into a RRIF, it is possible to keep the contributing spouse from being taxed on the withdrawals made from the RRIF.

If, during the current or two preceding years, your partner made a spousal contribution to your RRSP before it was converted into a RRIF, he or she will be taxed on a portion of the income from the annuitant's RRIF (three year rule) if the withdrawal exceeds the annual minimum. To avoid this, the annuitant should withdraw only the annual minimum for at least the first three years of the RRIF. As soon as three years pass without any contributions to a spousal RRSP, only the annuitant is taxed on RRIF withdrawals.