Understanding the Benefits of Spousal RRSPs

Spousal RRSP's, Calgary

One of the challenges that retirees face is equalizing their retirement income as a way to share and reduce the income tax bill. One individual earning $80,000 a year will pay $18,260 in taxes, while 2 individuals earning $40,000 each will pay only $6385. That's a total saving of $5490 for the couple and if the couple is age 65 or older, there's another age credit of about $1000 each. So, it's to your advantage to strategize as to the best way to do this. One of those ways is the spousal RRSP.

Keep in mind that this is an income strategy most useful to retirees before the age of 65. After age 65 an RRSP can be converted to a RRIF and then RRIF income is splittable for income tax purposes.

It's a good idea for couples to keep their RRSP accounts at a similar size to ensure tax savings. Here are some things to keep in mind:

1. Contribution room. I'll use Nancy and me as an example. I can only contribute to a spousal RRSP if I have contribution room available. I would get the tax deduction for the year that I make the contribution. Nancy could also contribute to her RRSP as well, based on her income and contribution room available. The only benefit of the spousal RRSP is at the time of withdrawing. Instead of the RRSP income being attributed to me, it's attributed to her and in effect an income-splitting strategy to reduce our overall tax burden.

2. Attribution rules. There's a rule with spousal RRSP's that many people misunderstand. It's the 3-year rule. Basically, Nancy would have to wait 3 years after my last contribution to her spousal RRSP before she could take out any income from the RRSP. If the income is taken out within the 3-year window than it is attributed to me as income. So. it's important to plan ahead. There is an exception to this rule, upon the death of a contributing spouse or upon divorce.

Let me explain this in greater detail. If I make a contribution before the end of December 2018 than the earliest Nancy can take it out as income to be attributed to her is January 2021. If I wait until February 2019 to make my spousal RRSP contribution, then she would have to wait until January 2022 to take her first withdrawal and not have the income attributed back to me.

Be careful how you plan.

The spousal RRSP is still a great income tax planning strategy for couples planning to retire prior to age 65, just keep in mind how the rules work and plan accordingly.

There are 2 other strategies where a spousal RRSP can provide a tax saving benefit:

1. An older spouse can contribute to a spousal RRSP up until the year the younger spouse turns 71. Provided you have RRSP contribution room you can make an RRSP contribution for your younger spouse, which can provide an excellent tax planning strategy and potentially reduce any OAS clawback.

2. A taxpayer's legal representative can make contributions to a spousal RRSP on behalf of a deceased taxpayer in the year of the taxpayer's death or within 60 days after the end of the taxation year in which the taxpayer dies. 

Next Steps:

It's important in retirement to have a trusted advisor that you can work with for many years to come. 55% of pre-retirees will change advisors when they transition to retirement because they realize they need specialized planning with a focus on income protection.

If you are in or close to retirement and would like to meet with us to put together a retirement income plan, book time in our calendar for a meeting time.

We'll also discuss:

  1. How long will my money last?

  2. How much can I spend each year and still have confidence that I won't run out of money?

  3. When should I take CPP and OAS? 

  4. Which of my assets should I spend first to create tax-efficient income?

  5. How much should I be saving now so that I can generate the income I'll want in retirement?

We can help you create a sustainable, predictable cash flow from your portfolio in the most tax-efficient manner to ensure you never have to worry about running out of money.

Want to retire in the next few years? Click here to Book  a Meeting

 

Willis and Nancy Langford

Retirement Income & Investment Planners

587-755-0159


Share This Post:

Related Posts

Latest Testimonial

My wife and I realized a long time ago the value of a financial planner over just a bank representative. We just felt like a number to the banks as every year it seemed we saw a different adviser with a different view. But finding a trusted, knowledgeable and personable financial planner took a lot of time and effort. It just seemed, so many large corporate Financial Planners were more concerned about what they could make off of us rather than what they could make for us.
What we wanted, was not just reasonable returns now, but good personal advice in our preparation for retirement and what happens when retirement actually arrives. We wanted someone who would be walking with us, guiding us on our way to retirement.
From the first time, we found the web site for Langford Financial Inc, we could see the knowledge of Willis and Nancy and a real effort to educate and pass on their knowledge through seminars, workshops and their personal service. Once I reached out through their web site for more information, Willis was quick to respond, offering and giving whatever information I was looking for and never was there pressure to commit to anything.
The feeling of comfort and ease when talking with Willis was inviting enough for us to want to meet with Willis and Nancy, just to see firsthand if there was a connection and what working with them would look like.
And when we did meet for the first time, that feeling of comfort and ease was very evident. It was a unique experience for us to be able to sit down and get to know a financial planner (or a team of both Willis and Nancy) and not have any sales pressure on us. Just getting to know Willis and Nancy was important for us. We needed to be comfortable with them and see their competence in the business, and it was obvious that Willis and Nancy wanted to know us better so they could know how best to help us.
Once we decided to move our accounts over to Langford Financial, we found their process was comforting and refreshing as Willis and Nancy first worked at evaluating our complete situation. They dug down to get a complete picture of where we were at, where we wanted to be and how to get there. This took some reflection on our part but once we saw how they put it all together in our “Financial House In Order” binder, we were confident we made the right decision to go with Langford Financial.
Since the time we started working with Willis and Nancy I have attended many of their seminars and can say the information they have been teaching has been amazing. Always relevant, and consistent with their desire to help those coming up to retirement, and covering so many different situations as everyone has a different life situation. I know more than one of the tax-saving strategies they taught at their seminars will work for my wife and I, so we are very happy about that.
We would definitely recommend Langford Financial, not just for all your retirement planning needs, but they have great ideas on savings for your grandchildren too!
Paul and Elaine Radder

Paul & Elaine Radder
Long-term Clients

Contact Us

Questions? Comments? Call us today at 587-755-0159 or fill out the form below:

Have Questions? Call Us Today At

Call Us

Join Our Newsletter



Subscribe