Should i contribute to my or my wife's RRSP (long term planning)
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Posted on: 21-03-09 09:33:50
Folks, I am working for now on a higher salary than my wife, however next year she might stop working as she plans to stay home with the kids going forward, I am wondering - if it would be a smarter idea for me to have my RRSP contributed under her RRSP contribution instead.
I might need access to my RRSP in around 4 years time, I might (hopefully) still be working some job however she might not, that way i was thinking it would be easier for us to withdraw RRSP as her individual income will almost be $0, This way while withdrwaing the amount of TAX i will have to pay will be minimum while we can still keep getting refunds in exchange of rrsp contribution until then.
Not sure if this is a good idea at all so thought i would get some opinion, any advise is highly appreciated 
Quote:
Originally posted by Cougar
Folks, I am working for now on a higher salary than my wife, however next year she might stop working as she plans to stay home with the kids going forward, I am wondering - if it would be a smarter idea for me to have my RRSP contributed under her RRSP contribution instead.
I might need access to my RRSP in around 4 years time, I might (hopefully) still be working some job however she might not, that way i was thinking it would be easier for us to withdraw RRSP as her individual income will almost be $0, This way while withdrawing the amount of TAX i will have to pay will be minimum while we can still keep getting refunds in exchange of rrsp contribution until then.
Not sure if this is a good idea at all so thought i would get some opinion, any advise is highly appreciated
Contributing to spousal RRSP by higher income earning spouse is a good way of income splitting. However, there are certain points to keep in mind when contributing to your spousal RRSP.
1. If you contribute to your spousal RRSP, you will be the contributor and get the benefit of tax refunds by deducting these contributions in your tax return but your spouse would be the annuitant (Owner) of the RRSP which means you would have no control on those funds and only your spouse would be able to withdraw these funds.
2. If your spouse withdraws these funds any time before the 3rd year from the year it was contributed, the income would attribute back to you and you would have to add that income in your tax return and pay taxes on the same.
3. Further, this attribution rule may still apply if you have contributed to your spousal RRSP in any of the last preceding 3 years and your spouse withdraws funds from any of the RRSP. So, if you want your spouse to withdraw funds from your spousal RRSP make sure to stop contributing to your spousal RRSP at least 3 year before the planned withdrawal. See this http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/wthdrwls/spsl-eng.html
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Quote:
Originally posted by Pramod Chopra
Contributing to spousal RRSP by higher income earning spouse is a good way of income splitting. However, there are certain points to keep in mind when contributing to your spousal RRSP.
1. If you contribute to your spousal RRSP, you will be the contributor and get the benefit of tax refunds by deducting these contributions in your tax return but your spouse would be the annuitant (Owner) of the RRSP which means you would have no control on those funds . . . .
Pramod, Thank you - this is great detail and is informative, Just curious though, If after around 4 years i wish to buy a home which would not have my wife listed as an owner or a co-signer, would she still be able to pull the RRSP under HBP that i would have contributed on behalf of herself ?
One condition to qualify for HBP is that You (participant) have to enter into a written agreement to buy a home before applying for withdrawal from RRSP.
Also you can only withdraw funds from a RRSP under which you are annuitant.
As mentioned by Pramod, in your case your wife is annuitant for any contribution you made under spousal RRSP and since she is not a part of agreement to buy a home, she cannot participate HBP.
In short, she also needs to be listed as owner for her participate under HBP.
Here is the link
http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-08e.pdf
Just curious, have you reached your RRSP contribution limit or the sole purpose of spousal RRSP is to withdraw it after three years? (you don't have to answer this but something to think about )
Quote:
Originally posted by rsbagwell
Just curious, have you reached your RRSP contribution limit or the sole purpose of spousal RRSP is to withdraw it after three years? (you don't have to answer this but something to think about
Thank You Rsbag for this link, I havent reached the max limit though but the reason why i was putting in RRSP was to pull it out for the last payment of a home whose occupancy is slated in 2012. Reason why i thought to have it contributed under my wife's names is that (i was thinking) may be her being unemployed at that time, will make it easy on us (the amount of tax) i might have to pay - should i consider pulling the funds out of RRSP and not participating in HBP, Not sure if its making any logical sense
but this is what i was thinking.
