A Spousal RRSP? How thought­ful, dear.

The Drumheller Mail - - NEWS -

When it comes to buy­ing some­thing spe­cial for your mate, cer­tain items just don’t get the heart flut­ter­ing. Let’s just say a be­lated Valen­tine’s Day gift of half-price choco­lates usu­ally won’t go over well. How about a spousal RRSP? Okay, it would also rank low on the ro­mance scale. But, like those dis­count bon-bons, it can save you a lot of money. And it’s one of the best moves a cou­ple can make for their re­tire­ment plan­ning.

What is a spousal RRSP? Pro­vided you still have con­tri­bu­tion room, you can put money into an RRSP on be­half of your spouse or com­mon­law part­ner. He or she be­comes the owner of the plan. Your con­tri­bu­tion is de­ducted from your over­all RRSP limit, but doesn’t af­fect your spouse’s limit. And, as you would for your own RRSP con­tri­bu­tion, you re­ceive a tax de­duc­tion.

The key rea­son for set­ting up a spousal RRSP – in­come split­ting. Spousal RRSPs are a way for the higher-in­come spouse to trans­fer money for fu­ture use to the spouse who, in the fu­ture, is ex­pected to have a lower tax­able in­come. When the time comes to take money from the spousal RRSP (as long as all con­tri­bu­tions to the spouse’s RRSPs have stayed in the plans for the cur­rent year and the two pre­vi­ous cal­en­dar years), all of the with­drawals may be taxed in the hands of the lower-in­come spouse, who will ide­ally be in lower tax bracket.

A re­tired cou­ple with un­equal in­comes can leave one spouse with a heavy tax bur­den. In fact, the best-case sce­nario for a spousal RRSP is when the plan owner ex­pects to have very lit­tle in­come in re­tire­ment, while the con­tribut­ing spouse ex­pects a sub- stan­tial amount of in­come. Gen­er­ally, a re­tired cou­ple with two mod­est in­comes will pay less than a cou­ple where one spouse re­ports all the house­hold in­come.

An­other key ben­e­fit of spousal RRSPs is re­tire­ment sav­ings flex­i­bil­ity. When you’re over 69, you’re not el­i­gi­ble to con­trib­ute to your own RRSP. But if your spouse is 69 or younger, and you still have con­tri­bu­tion room, you can put money into a spousal RRSP. So you can con­tinue build­ing your fam­ily’s re­tire­ment sav­ings be­yond your cut-off age for RRSP con­tri­bu­tions.

Talk to a fi­nan­cial in­sti­tu­tion about the best strat­egy for spousal RRSPs. It may not be the most ro­man­tic gift. But there’s plenty of chances to make up for it us­ing all of the money you’ll save.

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