Maximizing Tax Savings with Spousal RRSP Contributions
We often see clients looking to make contributions to their RRSPs in order to save on taxes and plan for their future retirement. This was the case for two clients of ours, Megan and Mark, who were interested in making a contribution using funds from their non-registered account.
One of the key factors that influenced our recommendation was Megan’s income tax bracket. Megan is in a higher tax bracket than her spouse Mark, and it is forecasted that her income in retirement will also be higher due to her generous employer defined benefit pension plan.
In order to maximize their tax savings, we recommended that Megan make a Spousal RRSP contribution for her husband Mark. This allows Megan to claim the contribution against her taxable income for the year, which would lower her taxable income and potentially increase her CRA refund.
By having Megan make the contribution, the couple was able to save on taxes in two ways. Firstly, the potential CRA refund from Megan ‘s tax return would be greater than if Mark had made a contribution to his own RRSP. Secondly, as the ultimate owner of the RRSP, Mark would be taxed at his lower tax rate instead of Megan’s higher tax rate on any future withdrawals. This would result in significant tax savings for the couple over time.
It is important to note that there is a three-year holding period for Spousal RRSPs. This means that Mark cannot make a withdrawal from the account for a period of three years from the date of the contribution. As long as Mark does not withdraw any funds during this period, any future withdrawals from the account will be taxed at his lower tax rate.
The Benefits of Planning Ahead
By planning ahead and taking advantage of Spousal RRSP contributions, Megan and Mark were able to save on taxes and ensure that they are well-prepared for their future retirement.
We can help
We are here to help you meet your investment goals and we welcome your questions. We work with business professionals, executives, and families to grow and protect their wealth using our Wealth Plan formula. To discuss our approach and if it is the right fit for you, we invite you to schedule a no-obligation discovery consultation.