Spousal RRSPs - an income splitting opportunity

-
Most Canadians are aware of the benefits of investing in an RRSP and take advantage of the opportunity to make regular contributions. However, relatively few individuals invest in a Spousal RRSP; as a result, the majority miss out on one of the few income splitting opportunities still available for Canadian taxpayers.

So what is a spousal RRSP? It's the same as a regular RRSP, except that a Spousal RRSP is registered in your spouse's or common-law partner's you, as the contributing spouse, take a full tax deduction for all the contributions you make to the spousal plan.

Deposits made to a Spousal RRSP cannot exceed your personal contribution limit. Your contribution can be made to a Spousal RRSP, your personal RRSP, or split between the two plans. Deposits made to a Spousal RRSP do not affect your spouse's RRSP contribution limit for the year.

Now now you are probably wondering why should one contribute to a spousal RRSP?
Well, the primary reason for establishing a Spousal RRSP is to allow for income splitting in the future, usually retirement. This is accomplished as a result of the assets in a Spousal RRSP being considered the property of the planholder (your spouse). Although there are some restrictions, when funds are withdrawn from the RRSP they are taxed in the hands of your spouse, at your spouse's marginal tax rate.

The most advantageous scenario for a Spousal RRSP occurs when the planholder would otherwise have little retirement income, while the contributing spouse would have a significant amount of income.

Comments

Anonymous said…
I thought the budget changes last year announced income splitting for retirees thus making the benefit from spousal RRSPs negligible. Other than the two having differing incomes and the lower income partner doesn't contribute, and the higher income partner contributes to the their own and the spouse to reduce the couples overall tax bill, I don't see how beneficial this could be anymore. Wouldn't it have to be a pretty unique scenario to make it worth while?
February 12, 2007 at 1:39 PM
torontoinvestor said…
While that is true that the government announced income splitting for retirees, the additional benefit in doing spousal RRSPs is if a spouse earns significantly more than the other, then the hire income earner can claim a tax deduction on the contribution to their partner's plan.
February 12, 2007 at 4:20 PM
Post a Comment

Popular posts from this blog

Fed up with Pigsback

-
I received the following in my mailbox today: Dear canadiandollars, We want to remind you of some changes that have taken place this week. Our 'Quiz Quest' promotion, where members could win daily or weekly PiggyPoints in our different Zones has now come to an end. The quizzes that are affected by this change are the Shop & Earn Quiz, Sports Quiz, Travel Quiz, Movie Quiz and the Quirky Quiz. Now that 'Quiz Quest' is over, we will no longer be awarding everyone PiggyPoints for getting the right answer. But don't worry; the quizzes aren't going away completely. You can still answer the quiz questions and be entered into a weekly draw to win 1,000 PiggyPoints for each quiz. This change was meant to take place as of Monday, January 28th, but due to a small problem with the website, you may have noticed over the weekend that you didn't get your PiggyPoints when you were supposed to. Please note that we will be crediting all members who completed quizzes over
Read more

2019 is officially in the books

-
Image
With 2019 in the books returning an astounding 28.9% for the S&P 500 and the Toronto Stock Exchange's S&P/TSX Composite index up 19%, there was a lot to cheer about for investors in North America. This was a remarkable year considering a lot of the doom and gloom that fell on markets in Q4 of 2018. A lot of pundits were calling for 2019 to be the year that the 10-year bull run would take a massive correction, but that certainly didn't happen despite the year making a lot of news that would arguably have made markets shakier than they were. I hope a lot of you readers were invested as it was a year to make a lot of easy money. Unless of course, you had invested in cannabis-related stocks. All this said, a correction could happen.  We never know when it could happen but for those with a long-term investment horizon should not be fearful of a recession or pull-back in stocks.  Take only the risk you can afford to take and stay the course. For something a bit on the
Read more

Back from a Hiatus

-
Like a phoenix rising from the ashes, I intend to be back.  The Personal Finance space in Canada has changed a lot in the last 5 years.  There's been a rise of new robo-advisors and free trading from some places like Wealthsimple.  It's an interesting time to be an investor. Look for more content in the near future.
Read more