Personal Finance

What can you do with RRSP contribution room for a spouse with no income?

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  • Mar 19th, 2015 2:37 pm
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Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes

What can you do with RRSP contribution room for a spouse with no income?

Anything useful you can do with it?
13 replies
Deal Addict
Apr 27, 2017
2085 posts
1541 upvotes
Vancouver
Luckyinfil wrote: Anything useful you can do with it?
use it another year when she has income. (Maybe next year?)
RRSP is about tax deferral. Differing taxes from one year to another after you retire.
Deal Addict
Dec 10, 2012
3886 posts
1527 upvotes
Canada
how would the spouse have any room at all if they have no income?
Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
badsha wrote: how would the spouse have any room at all if they have no income?
They accumulated it and now stopped working.
Banned
User avatar
Jun 8, 2008
3977 posts
1423 upvotes
Toronto
Assuming there is money saved in the RRSP, they may want to start taking the money out a little bit at a time - pay tax on the amount when income is very low.
Deal Addict
Jul 15, 2009
3653 posts
3050 upvotes
Luckyinfil wrote: Anything useful you can do with it?
If you're eligible for the Family Tax Cut and don't hit any of the various limits, have the spouse make a contribution and get a refund at the marginal tax rate after the income splitting.

This doesn't work if the spouse's income is really zero, but that's unlikely. To qualify for the FTC, you need a child, and therefore the spouse gets at least UCCB.
Deal Addict
Jul 15, 2009
3653 posts
3050 upvotes
wirebound wrote: Assuming there is money saved in the RRSP, they may want to start taking the money out a little bit at a time - pay tax on the amount when income is very low.
Not a good idea if you qualify for the FTC and haven't hit the limits on it. In that case, the zero-income spouse withdrawing the money reduces the other spouse's FTC by the after-splitting marginal tax rate.
Deal Addict
Jan 24, 2015
1021 posts
310 upvotes
Canadian in USA
Save the contribution room for a future year. Use the spouse's TFSA in the meantime.
Penalty Box
Aug 11, 2005
4175 posts
1432 upvotes
rj2wells wrote: Save the contribution room for a future year. Use the spouse's TFSA in the meantime.
What if they never plan on working or never plan on making more than their income during retirement?
Deal Addict
Jan 24, 2015
1021 posts
310 upvotes
Canadian in USA
Luckyinfil wrote: What if they never plan on working or never plan on making more than their income during retirement?
Then the RRSP room is kind of a waste?

The last thing you want to do is contribute in a low tax year and withdraw in a high tax year. The whole RRSP tax magic relates to contributing when you have a high income (say, avoiding 40% marginal tax) and withdrawing when you have a low income (say 25% marginal tax). If your spouse has NO income this year then they are in the lowest possible tax bracket, and potentially a LOWER bracket than when they start drawing income in retirement from whatever source of funds you envision doing that.
Deal Addict
Jan 24, 2015
1021 posts
310 upvotes
Canadian in USA
Well....

One consideration would be to plan for future income splitting. That is a BIG GAMBLE. The family income split could extend out anyway to cover all couples. But you could use spousal RRSP contribution room knowing that it provided NO TAX DEDUCTION, but with the view towards splitting income on withdrawl later in retirement.

This is something you would do ONLY IF you are worried about lopsided income in retirement. Do the math first -- will the income earning spouse end up with a high tax bill in retirement when you start forced withdrawls from the RRSPs? If so, you could try and get money into the spouse's RRSP to equalize things later. And note that you WILL get taxed on the withdrawl, which amounts to DOUBLE TAXATION because you got no meaningful deduction for it. Still, if the gap in incomes in retirement is going to be huge even with double taxation it might be beneficial.

I don't really think it's a great idea, but it's an idea. You can say that the spouse doesn't plan on working again, but who knows if that's true -- you could start a family business in the future with the spouse reporting some of the earnings. Are you sure that will never happen?
Deal Addict
Jul 15, 2009
3653 posts
3050 upvotes
You could also use the RRSP as an extra TFSA.

You say the spouse has no plans to ever work again.

So the spouse contributes, gets $0 refund. Money grows tax-free. Many years later, the spouse still has $0 income, withdraws at most $10k per year, so is within the basic personal amount, and therefore pays $0 tax.

$0 refund going in, $0 tax coming back out, tax-free growth within the RRSP. It's just like an extra TFSA.

Of course, if you have any TFSA room, it's better to use a real TFSA, since you don't have to limit yourself to $10k per year in withdrawals. But if your TFSAs are maxed, it's like a way to get a little bit more TFSA.
Sr. Member
Aug 17, 2008
513 posts
234 upvotes
Quebec
bubak wrote: You could also use the RRSP as an extra TFSA.

You say the spouse has no plans to ever work again.

So the spouse contributes, gets $0 refund. Money grows tax-free. Many years later, the spouse still has $0 income, withdraws at most $10k per year, so is within the basic personal amount, and therefore pays $0 tax.

$0 refund going in, $0 tax coming back out, tax-free growth within the RRSP. It's just like an extra TFSA.

Of course, if you have any TFSA room, it's better to use a real TFSA, since you don't have to limit yourself to $10k per year in withdrawals. But if your TFSAs are maxed, it's like a way to get a little bit more TFSA.
you're missing the lost 'spousal amount' credit (11 138*15%). In Qc its arounds 3000 $ with the provincial credit so a 10 000 $ withdrawal would cost 30 %, not a good idea at all

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