Two Ways A Spousal RRSP Can Help Your Family

Two Ways A Spousal RRSP Can Help Your Family

As the deadline for finalizing your 2020 Registered Retirement Savings Plan (RRSP) contribution nears (March 1st), you might be looking for more ways to lower your current and future tax load. A spousal RRSP is a good option if you and your spouse have different income levels. It’s a form of income splitting that can lower your tax burden in two ways.

First: Sharing Retirement Funds, and Tax
Contributions are made in the name of the lower-earning spouse by the higher-earning partner. It benefits your family by increasing the RRSP nest egg for the spouse whose income is significantly less. Such as a stay-at- home parent, or a partner who took time off from their career because of illness or to pursue their education.

The goal of the plan is to even out retirement savings between the two partners. It also reduces the retirement tax load. The recipient spouse owns the RRSP and is likely to pay a lower tax rate when the money is withdrawn in retirement.

Just like your own RRSP, you can keep adding to the spousal plan until the end of the year your spouse turns 71.

Second: The Tax Credit
The spouse contributing for the lower earning partner deducts the spousal contribution from their own taxable income. Just as they would for contributions to their own RRSP.

The tax credit from a spousal RRSP helps to reduce the higher-earning partner’s taxable income. With strategic tax planning, it can also assist in lowering their marginal tax rate (the highest rate of tax they pay).

This strategy depends on the contributing spouse’s available RRSP contribution room. The amount of money you can invest is based on this. The recipient partner’s RRSP contribution room is not affected.

Also, a spousal RRSP plan is subject to the three-year attribution rule. If the recipient withdraws money within the first three years, the contributing spouse must pay the tax.

Consider a spousal RRSP to help you save for retirement and lower your taxes. Ask your Financial Advisor how this strategy could benefit your family.

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