Could a spousal RRSP help you?
Most people are familiar with how RRSP contributions can help them save money and reduce their tax bill. For some couples, a spousal RRSP can be an especially effective way to do this.
How a spousal RRSP helps:
Spousal RRSPs are a form of income splitting. They are usually used when the two partners have significantly different levels of income — for example, if one person works while the other stays home to raise children. The net effect is to lower the couple’s overall tax burden in two ways. First, by reducing the higher earning partner’s taxable income during the working years. Second, by paying a lower tax rate when the money is withdrawn by the lower income partner in retirement.
How a spousal RRSP works
Here’s what happens when you set up a spousal RRSP:
- It is also possible to combine a personal RRSP with a spousal RRSP. The totality of the funds will be treated as a spousal RRSP when withdrawn.
- The higher earning spouse or common-law partner makes a contribution to an RRSP registered in the name of the lower earning spouse or partner.
- The contributing spouse receives the tax credit, which reduces their taxable income.
- The recipient spouse will own that RRSP and will be taxed when the money is withdrawn based on their own (usually lower) tax rate.
- However, if the recipient withdraws the money within the first three years, the contributing spouse pays the tax.
- The amount that may be put into a spousal RRSP is based on the contributing spouse’s RRSP contribution room; the recipient spouse’s contribution room is not affected.
It is also possible to combine a personal RRSP with a spousal RRSP. The totality of the funds will be treated as a spousal RRSP when withdrawn.
Know your marginal tax rate
Generally speaking, the goal of tax planning is to reduce a person’s marginal tax rate (the highest rate of tax they pay). In the case of a couple, the greatest benefit is achieved by reducing the taxable income of the person with the highest marginal tax rate. If you’re considering setting up a spousal RRSP, you can easily check your marginal tax rates by entering your current taxable incomes (and estimate what they might be if you were to contribute to a spousal RRSP) into this calculator.
Right for you?
Tax planning can be complex, so it’s helpful to get expert advice. Contact your financial advisor today to discuss an RRSP tax strategy that could involve a spousal RRSP.
Your article helped me a lot, is there any more related content? Thanks!
Thank you for your sharing. I am worried that I lack creative ideas. It is your article that makes me full of hope. Thank you. But, I have a question, can you help me?
613021 387472A quite informationrmative post and lots of truly honest and forthright comments produced! This certainly got me thinking a great deal about this issue so cheers a lot for dropping! 765273
720225 482355Keep up the wonderful piece of work, I read few posts on this internet web site and I feel that your web blog is actually interesting and contains lots of superb info. 162834
147013 436433Wow, superb blog layout! How long have you been blogging for? you make blogging appear effortless. The overall look of your web site is magnificent, as nicely as the content! xrumer 869474
129446 804681I discovered your blog website on google and verify several of your early posts. Continue to maintain up the superb operate. I just extra up your RSS feed to my MSN News Reader. Searching for forward to reading extra from you in a although! 502530
845593 555996Id need to speak to you here. Which isnt something Which i do! I enjoy to reading a post that really should get individuals to believe. Also, thank you for allowing me to comment! 778263
980431 455456Its superb as your other posts : D, regards for posting . 812011
616841 887446Its onerous to search out knowledgeable individuals on this subject, however you sound like you already know what you are talking about! Thanks 650328
438288 878773Das beste Webdesign Berlin erhalten Sie bei uns, genauso wie professionelles Webdesign. Denn wir sind die Webdesign Agentur mit pfiff. 453121
428312 537862I think other internet site owners should take this website as an model, extremely clean and superb user genial design and style . 452966
185839 464704Wahhhh,!! I dnt believe its food thats making her tummy groww!!|tiitaBoo| 302970
375979 456640I love your writing style truly enjoying this web web site . 297294
474302 886734Youre so cool! I dont suppose Ive read anything such as this before. So nice to get somebody with some original thoughts on this topic. realy we appreciate you starting this up. this fabulous website are some points that is required on the internet, somebody with slightly originality. beneficial function for bringing a new challenge on the world wide web! 890702