Personal Finance

Stay at Home Parent with RRSP Room

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  • Jul 21st, 2020 6:04 pm
[OP]
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Nov 10, 2012
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Calgary

Stay at Home Parent with RRSP Room

Been trying to search threads for the answer to this question... I realized my wife has a decent amount of unused RRSP contribution room in her name from when she used to work. She has been a stay-at-home parent for a number of years now with virtually no income. I was trying to think of whether there is any way to put this RRSP space to use... I couldn't think of any good way as long as useful purpose as long as her income remains 0 (since her marginal tax rate is 0% today but may be above that in retirement - the opposite of a situation where one would normally want to use an RRSP). I figured I would ask RFD to see if anyone had a good idea for this issue!
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May 11, 2014
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jarfgames wrote: Been trying to search threads for the answer to this question... I realized my wife has a decent amount of unused RRSP contribution room in her name from when she used to work. She has been a stay-at-home parent for a number of years now with virtually no income. I was trying to think of whether there is any way to put this RRSP space to use... I couldn't think of any good way as long as useful purpose as long as her income remains 0 (since her marginal tax rate is 0% today but may be above that in retirement - the opposite of a situation where one would normally want to use an RRSP). I figured I would ask RFD to see if anyone had a good idea for this issue!
If you know she will be working in the future, she could contribute to them anyway, and defer the deduction until she actually is making money. The growth would then be tax deferred and there is a nice deduction that can be used when she works. But the benefit is fairly minimal and TFSA is likely better as it is more flexible. But if you have funds to max both, you can consider this.
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[OP]
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Nov 10, 2012
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Calgary
xgbsSS wrote: If you know she will be working in the future, she could contribute to them anyway, and defer the deduction until she actually is making money. The growth would then be tax deferred and there is a nice deduction that can be used when she works. But the benefit is fairly minimal and TFSA is likely better as it is more flexible. But if you have funds to max both, you can consider this.
If we did this, what happens if she never works again? At the moment, we have no plans for her to go back to work.
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jarfgames wrote: If we did this, what happens if she never works again? At the moment, we have no plans for her to go back to work.
Only earning interest and nothing else.
[OP]
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Nov 10, 2012
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cgtlky wrote: Only earning interest and nothing else.
I am confused... what do you mean?
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jarfgames wrote: I am confused... what do you mean?
RRSP is used to reduces her taxes from currently year going forward (next yr, and so on...). Since you say "we have no plans for her to go back to work...". Basically seating at the RRSP accounts earning interest for retirement.
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Dec 18, 2008
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Can this basically be used as a tax-free growth account? Are there attribution rules if I gift money to my spouse to contribute to their rrsp?
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jarfgames wrote: If we did this, what happens if she never works again? At the moment, we have no plans for her to go back to work.
That's the worst outcome. If she doesn't work, and puts money into an RRSP, she has to pay income taxes on any withdraws. This means she will be penalized for putting money into RRSP because she wouldn't be able to take any benefit from income tax deferrals, but assessed income tax upon withdraws.

If the chance of this is high, I would recommend not bothering using her RRSP contribution room.
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[OP]
Deal Addict
Nov 10, 2012
2695 posts
1991 upvotes
Calgary
xgbsSS wrote: That's the worst outcome. If she doesn't work, and puts money into an RRSP, she has to pay income taxes on any withdraws. This means she will be penalized for putting money into RRSP because she wouldn't be able to take any benefit from income tax deferrals, but assessed income tax upon withdraws.

If the chance of this is high, I would recommend not bothering using her RRSP contribution room.
Yes, this was my thinking. Was just hoping for some sort of creative (legal) idea to make use of the contribution room.
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She would have the carried forward rrsp deduction so only the gains would taxable, but taxable as income.
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Aug 20, 2015
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OP is your RRSP account disproportionately higher than your wife? This doesn't really answer your original question but you could consider contributing to a spousal RRSP to even out the tax load in retirement.
[OP]
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Nov 10, 2012
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tsingoo wrote: OP is your RRSP account disproportionately higher than your wife? This doesn't really answer your original question but you could consider contributing to a spousal RRSP to even out the tax load in retirement.
I do the majority of my RRSP contributions as a spousal contribution for this reason. I am fortunate to be a part of a DB pension so the RRSP room available in my name is not significant.
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Jan 19, 2017
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hobbes778 wrote: She would have the carried forward rrsp deduction so only the gains would taxable, but taxable as income.
that is not correct. Every cent of RRSP withdrawl will be added to taxable income, not just gain, even if you didn't deduct anything.
I guess you are technically correct such that when you withdraw and your taxable income is high enough to have tax payable, you will use the carried forwarded deduction to offset the taxable income.
Member
Jun 6, 2014
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Toronto, ON
ml88888888 wrote: that is not correct. Every cent of RRSP withdrawl will be added to taxable income, not just gain, even if you didn't deduct anything.
I guess you are technically correct such that when you withdraw and your taxable income is high enough to have tax payable, you will use the carried forwarded deduction to offset the taxable income.
You take the deduction the same year you make the withdrawal.
[OP]
Deal Addict
Nov 10, 2012
2695 posts
1991 upvotes
Calgary
ml88888888 wrote: that is not correct. Every cent of RRSP withdrawl will be added to taxable income, not just gain, even if you didn't deduct anything.
I guess you are technically correct such that when you withdraw and your taxable income is high enough to have tax payable, you will use the carried forwarded deduction to offset the taxable income.
icedtea365 wrote: You take the deduction the same year you make the withdrawal.
Interesting points here.. so basically, we contribute to her RRSP today but defer claiming the contribution until someday when we retire and begin withdrawing from the RRSP (when it becomes income and presumably we owe some tax on that income). In the meantime the money grows tax free. Is that what you’re saying?

Also, are there issues with contributing to her RRSP from our joint account given she has virtually no income today (ie - problems with attribution rules etc)?

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