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Contribute to your spouse's RRSP
Did you know that a couple can pay less taxes if the higher-earner contributes to the RRSP of his or her spouse?
The contributor claims the deduction, which reduces the couple's taxes. At retirement, withdrawals are taxed in the hands of the lower-income spouse. Essentially, the contributor “transfers” a portion of his or her income to the spouse.
This strategy reduces the total amount of income tax the couple pays on their retirement income.
Why invest in a spousal RRSP?
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Your spousal RRSP can help you become a property owner. |
If your spouse does not contribute to an RRSP due to lack of funds, you may contribute to an RRSP for him or her and double your downpayment to buy your first home using funds from both RRSPs instead of only one. Note that
under the Home Buyers Plan (HBP) the maximum amount that can be withdrawn from an RRSP per spouse is $25,000. |
Spousal RRSPs can send you back to school |
Under the Lifelong Learning Plan (LLP), funds invested in your and your spouse's RRSPs may—to a maximum of $20,000 per spouse—be used to help one spouse go back to school. |
Spousal RRSPs allow you to split your income before you turn 65 |
Since the average age of retirement in Québec is 59, if you want to be among those who retire at that age—or even 55—you can give yourself a pat on the back for investing in your spouse's RRSP.
By doing so, your income can be adjusted to your joint financial situation as well as tax rates that apply to the tax bracket of each spouse. However, you should stop contributing three years before you retire to avoid withdrawals by your spouse being included in your income. |
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Did you know?
Since it is possible to split some types of pension income to avoid withdrawing from a spousal RRSP, some investors wonder if it is still worth contributing. The answer depends on each couple but here are some guidelines that may help you decide:
If you are under 65, only annuity payments from your pension fund may be split. To these may be added RRSP or deferred profit-sharing plan (DPSP) benefits, as well as registered retirement income fund (RRIF) or life income fund (LIF) benefits you receive after your spouse is deceased.
After 65, you may also split the benefits you receive from your RRSP and DPSP, as well as benefits from your RRIF and LIF. Whatever the case, you may split only 50% of your taxable income.
For all of the articles, visit the Did you know page.
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