RRSP vs. TFSA Contributions - High Income

deep wrote: ↑ I'm trying to understand what you're saying here. You feel that at a HIGHER income level a larger RRSP contribution makes LESS of a difference? So you contributed when you were lower income but you're thinking of not doing it now?

If that is the case, you have it exactly backwards. The deferment you receive from RRSP contributions is at your marginal tax rate, so the higher your income level, the greater potential return, and the greater the likelihood that your current marginal rate may be higher than your marginal rate when you're withdrawing from your RRSP. Have you run a calculation on your current tax return?

xgbsSS wrote: ↑ Another key thing to consider is whether your income between you and your spouse is different. If this difference is significant, the spousal RRSP would be something you should consider. If let's say you make $150k and the spouse made $50k, the income tax rate you pay would be higher than the spouse. If so, you can use your spouse's RRSP contribution room by making a spousal contribution into the spouse's account and then claiming the RRSP deduction. By doing so, the deduction results a higher income tax return as your tax rate would be higher and gives you a better chance to lower your future income tax rate as it will equal out the future RRIF income (as it should be lower as it is shared).

xgbsSS wrote: ↑ Another key thing to consider is whether your income between you and your spouse is different. If this difference is significant, the spousal RRSP would be something you should consider. If let's say you make $150k and the spouse made $50k, the income tax rate you pay would be higher than the spouse. If so, you can use your spouse's RRSP contribution room by making a spousal contribution into the spouse's account and then claiming the RRSP deduction. By doing so, the deduction results a higher income tax return as your tax rate would be higher and gives you a better chance to lower your future income tax rate as it will equal out the future RRIF income (as it should be lower as it is shared).

georvu wrote: ↑ Wouldn't a spousal contribution be based on the higher earning spouse's contribution room or did I read/understand wrong?

So following your example... spouse earning 150k would use their rrsp contribution room and make contribution to rrsp of spouse earning 50k? The deduction would go to spouse earning 150k. In other words... the lower earning spouse could have 0 rrsp contribution room but still have a contribution made to their rrsp from higher earning spouse who does have rrsp contribution room.

raptors64 wrote: ↑ This is exactly the case between me an my spouse.

Since I don't have time to open a spousal RRSP tomorrow, should I max out my RRSP room first and then put whatever I can into my spouse's regular RRSP?

willdaman wrote: ↑ OP do you have kids?

Putting aside the question of whether to put money into your rrsp or spousal rrsp, if you have kids then lowering your+spouse total net income by making an rrsp contribution will increase the amount of child benefit you get from govt (i.e free money).

I’m scrambling to get this done right now and injecting a chunk into both my rrsp and spousal rrsp because if I don’t then we will get zero child benefit payment...this is the year to do it for me bc wifey was on mat leave for most of 2017, when she goes back to work we will get zero under the current child benefit structure based on our combined income.

If you don’t have kids but planning, this is something to keep in mind as well...maximize rrsp contribution for the tax year when one spouse is on leave to minimize net income = more child benefit entitlement.

Also, slightly off topic, but one advantage of the the spousal rrsp is that three years after you stop contributing to it, your spouse can take the money out of the spousal rrsp and it gets counted towards their own income and therefore taxed at their own marginal rate...if you can plan it so this occurs while the spouse is on a parental leave then you’ve saved yourself some tax money. E.g. your marginal rate is 50%, you contribute $10k to spousal rrsp and you will get back $5k refund for that tax year. Spouse takes that $10k out 3yrs later, and assume their marginal rate at the time is 20%, spouse has to pay $2k in tax for that year. Net it out and your family has just saved $3k in taxes. I believe that for this type of thing to work, the contributions to the spousal rrsp has to have stopped and then 3yrs go by (i.e. there’s no first in first out type principle in play).

xgbsSS wrote: ↑ Sorry I had misinformed you. The Spousal RRSP is based on your(the contributor's) RRSP room.

Probably, using your RRSP room for yourself makes sense, unless you feel that waiting until next year to potentially lower your own future income and to increase your spouse's makes more sense. You need to decide the pro and con of getting a bigger tax return this year (getting the money 1 year earlier), vs the potentially income tax savings of attributing more of the future income to your spouse next year with adding a larger RRSP contribution to the spousal RRSP. For your spouse's contribution, depending how much lower his/her income is, you might want to prioritize the TFSA before the RRSP.

If you have time, technically the last day this year is March 1st should you be able to find somewhere willing to open a Spousal RRSP on the fly and take your contribution immediately. Sask Pension which I personally use allows you to make spousal or individual contributions on the same account. You can make a contribution with credit card so you do not have to wait for contributions to clear via banking etc. They do everything remotely so they might be able to help you on the fly. Mind you, max is $6000 so not sure if this can help you. Maybe try calling them and they might be able to open an account immediately.

raptors64 wrote: ↑ Sorry I dont understand our 2nd paragraph after VS.....can you please elaborate?

raptors64 wrote: ↑ Planning to have one this year. Wife will go on leave from 2018 to 2019, with the majority of the leave being in 2019. herefore should I maximize my RRSP contribution next year for the 2018 or 2019 tax year?

willdaman wrote: ↑ If the majority of mat leave will be in 2019, then you’ll get the most impact out of a big rrsp deduction for the 2019 tax year to bring your net family income to as low as possible. Of course if your wife gets ei and a salary top up at work, might not make a big of an impact as you would like.