When I started writing I wrote many paragraphs on the importance of Spousal RRSPs, to enable being in a lower tax bracket when you retire. A problem many folks have is that if you only have an RRSP in the main breadwinners name, the tax rate the money comes out of the RRSP (into the RRIF) may be higher than when the money went into the RRSP, which seems wrong (in that you pay the government the maximum tax on things, I always like to try to minimize my tax payments, but that may be just my thing). Are pensions and spousal RRSPs complimentary ?
When I first wrote about this (in 2005), my scenario was:
- I had a pension from my employer (BNR/Nortel) (yes later I learned how foolish that thought had been, but only long after planning things).
- My wife might have CPP but that would be her sole income.
At the time, the concept of splitting pension income was not on the table, so the only way to put money into my wife’s hands, was to put money into a Spousal RRSP. A spousal RRSP, counts against the contributors RRSP room, however when the Account has money withdrawn from it, it would be taxed in the spouses hand (this is a gross over simplification, in fact the money is only in the spouse’s hands 3 years after deposit). This was the only way to “split income” and thus lower the tax burden.
Currently, life is better for retirees, in that they can:
- Split their private pension income (this is a simple act on your tax forms, I believe)
- Split your CPP, a much more complicated scenario
So I have read where folks are saying that a Spousal RRSP is now obsolete for those with pensions, but I disagree.
Currently my wife has a small private pension, along with CPP, so I can simply use the Spousal RRSP as another means to even out our income levels at retirement. Before I retire, it is another way to put money in my wife’s hands as well, as the funds in there are “hers” (in the eyes of the CRA) after 3 years, so if there was a need for my wife to have income, aside from me, that is another option as well.
Where Does the Spousal RRSP Stand ?
Question for my smart readers (that is all of you), what is your thinking on Spousal RRSPs? Still a good idea? Obsolete ?
Do same-sex couples get to take advantage of Spousal RRSPs? Anybody?