RRSP Spousal

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Mar 1st, 2022 9:38 pm

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Mar 1st, 2022 11:41 am

CDNPatriot [OP]: Deal Addict; Aug 26, 2004; 3432 posts; 657 upvotes; Toronto

Mar 1st, 2022 11:41 am

RRSP Spousal

Wondering which is the better approach.

Spouse 1 makes less money. Has the most contribution room.

Spouse 2 makes more money. Has exhausted most into an individual RRSP before marriage.

Spouse 1: 40K in RRSP lower income Contribution limit 90k
Spouse 2: 120k in RRSP higher income Contribution limit 25k

Options
1. Put the entire 115k into the spousal RRSP
2. Put only the higher income spouse at 25k in the spousal RRSP

Which one is better?

5 replies

Mar 1st, 2022 2:43 pm

callernamet: Deal Fanatic; Mar 10, 2018; 5150 posts; 1616 upvotes; does it matter?

Mar 1st, 2022 2:43 pm

Interesting. the tax rate will determine which is better and will depend on combined taxes, right?
On other hand if lower tax rate assumed is 25% then 115K will give you back 25% to 35%. my guess.
And if tax rate is 40% then 25K will give return 25% to 40%. also guess.
I would put the income on taxtips.com or studitax and play around the contribution to get idea.

Tried new coffee and doughnut. Found same old stale thing. expected bill of six bucks but it was 600 million. Big mistake so the guy said don't worry it is on the house. going back to McD.

Mar 1st, 2022 2:51 pm

SubjectivelyObjective: Deal Addict; Jun 26, 2019; 2013 posts; 1749 upvotes; GTA

Mar 1st, 2022 2:51 pm

callernamet wrote: ↑ Interesting. the tax rate will determine which is better and will depend on combined taxes, right?

This, what is lower and what is higher? What's the marginal in each case? If $115k could reduce them to only 21 or 33% marginal rates, probably not worth it.

Mar 1st, 2022 3:14 pm

DaveTheDude: Deal Addict; Mar 3, 2018; 3075 posts; 3455 upvotes; GTA

Mar 1st, 2022 3:14 pm

Ideally you want to split retirement income between spouses to minimize the tax rate and clawbacks like OAS. This can be done with a spousal RRSP that allows the lower income spouse to withdraw amounts that were contributed and deducted by the higher earning spouse. Useful for RRSP withdrawals when the spouses are under age 65.

Otherwise if the plan is not to withdraw until age 65 then a spousal RRSP is of less use. As your RRSP can be converted to a RRIF and withdrawals can be split for tax purposes anyways with your spouse. Since we don't know how the future will unfold I would still go with option two and try to equalize the RRSP balances. Could use the rest to build an unregistered account up with eligible dividend stocks to take advantage of the dividend tax credit and lower capital gains tax rate.

Mar 1st, 2022 9:27 pm

d1000: Newbie; Oct 19, 2006; 65 posts; 71 upvotes

Mar 1st, 2022 9:27 pm

When you contribute to the spousal RRSP, I believe you a are using your own contribution room and claiming the deduction. Spouse 2 can only contribute to 25k to a SRRSP based on contribution room, and not 115k. Option 1 will be a combination of personal and spousal, and not all spousal. Spouse 1 will claim and deduct the 90k from own income, and not spouse 2

Mar 1st, 2022 9:38 pm

callernamet: Deal Fanatic; Mar 10, 2018; 5150 posts; 1616 upvotes; does it matter?

Mar 1st, 2022 9:38 pm

d1000 wrote: ↑ When you contribute to the spousal RRSP, I believe you a are using your own contribution room and claiming the deduction. Spouse 2 can only contribute to 25k to a SRRSP based on contribution room, and not 115k. Option 1 will be a combination of personal and spousal, and not all spousal. Spouse 1 will claim and deduct the 90k from own income, and not spouse 2

You are correct. There is a limit.

How much can I contribute to a spousal RRSP?

Your 2020 contribution limit is 18% of your 2019 individual earned income, as listed on your previous year’s tax return, up to a maximum of $27,230 plus any contribution room carried forward from previous years less any pension adjustments.

Your spouse’s contribution limit is not affected by your contributions to the spousal RRSP.

https://www.td.com/ca/en/personal-banki ... usal-rrsp/

Contributing to your spouse's RRSP can help you defer tax. The higher-income earner gets a tax deduction when contributions to the Spousal RRSP are made; and eventually, withdrawals from the plan are taxed based on the marginal tax rate of the lower-income earner.

Tried new coffee and doughnut. Found same old stale thing. expected bill of six bucks but it was 600 million. Big mistake so the guy said don't worry it is on the house. going back to McD.

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