Spousal RRSP's

Question: I am fortunate enough to have a steady job that pays well and one that, I believe, will provide me with excellent pension benefits when I retire.

However, my husband is self-employed and also spends a lot of time taking care of the children, so his income isn't very high. As a result, his RRSP contribution limit is quite low. Even if it were higher, he has little cash left over to contribute to an RRSP. Is there a way that we can equalize our retirement incomes?

Answer: You and your husband sound like perfect candidates for a spousal RRSP. Using your excess RRSP contribution room, assuming you have some room remaining after your pension adjustments and any contributions to your own RRSPs\,, you can make contributions to a spousal RRSP up to your own contribution limit. The spousal RRSP names your husband as the annuitant.

When you both retire, your husband can draw on those funds. The funds will be included in his income for tax purposes. Not only do you get to claim the deduction at your current marginal tax rate, instead of his, but you will likely lower your combined income taxes at retirement. Remember, the spouse with the higher taxable income should purchase the RRSPs, then decide if the spousal RRSP is an appropriate option.

One cautionary note, your husband should not withdraw any funds from any spousal RRSP that you establish if you have contributed to that or any other spousal RRSP on his behalf within the previous three years. If he does, those withdrawals will be attributed back to you, and you will have to include them in your current income for tax purposes.

Need further clarification or help, give us a call at 475-5109, toll-free 1-866-475-5109, fax 475-1581, e-mail info@lighthousewealth.ca. Be sure to visit our website at www.lighthousewealth.ca

The information provided is accurate to the best of our knowledge as of the date of publication, but rules and interpretations may change. This information is general in nature, and is intended for educational purposes only. For specific situations you should consult the appropriate legal, accounting or tax expert.