How to minimize the OAS clawback

Most people are familiar with the Old Age Security (OAS) clawback, which reduces the OAS benefit by 15% for every dollar of net income above $77,580 for the 2019 income year. The payment is fully eliminated when net income reaches $126,058.

Minimizing the OAS clawback means reducing your net income. That can involve a variety of techniques, some of which are best started well before OAS benefits begin at age 65. Here are four strategies to consider.

Bulk up your TFSA

Begin by maximizing your Tax-Free Saving Account (TFSA) and that of your spouse. Income investment or savings in TFSAs are tax-free, while TFSA withdrawals don’t affect the clawback.

Split income with your spouse

Splitting income with your spouse may enable you to lower the net income of the higher-earning spouse. Two effective ways to split income are:

• Using a spousal Registered Retirement Savings Plan (RRSP).
   
• Lending assets to your lower-income spouse to invest.
   
• Allocating eligible pension income to your lower-earning spouse.

Delay converting your RRSP

Waiting until the end of the year you turn 71 to convert your RRSP to a Registered Retirement Income Fund (RRIF) will give you several years of ongoing tax deferral.

Minimize RRIF withdrawals

Take only the minimum RRIF withdrawals annually in order to keep your net income as low as possible. If your spouse is younger than you, basing your RRIF withdrawals schedule on his or her age will help to lower the annual required minimum withdrawal.

Other strategies to reduce the OAS clawback may be available to you, so feel free to talk to us. We can guide you on specific choices for your circumstances.