Should you be contributing to your spouse's RRSP?

Test

January 21, 2011 | 04:00 Josee Jeffrey, D. Fisc. Pl. Fin | Money

With the arrival of pension splitting, many people believe that contributing to the RRSP of a spouse is no longer worthwhile.

A spouse's RRSP remains a good income splitting strategy if there is no pension from an employer, or when there are significant income gaps between both spouses. Meanwhile, the person with the higher income tax rate will reduce this yearly cost by contributiing to his or her spouse's RRSP, while withdrawals from the RRSP will be taxed based on the spouse with the lower revenue. In addition, there are no age-related conditions for withdrawals, nor is there a limit on how much can be taken out. All you have to do is keep in mind the 3 x 31 December rule to avoid having the withdrawals included in the income of the contributor.

REUTE

You can contribute to your RRSP until Jan. 31 of the year you are 71 years old. If you still have unused contribution room, you can contribute to the RRSP of your spouse until they turn 71.

Before retirement, using a spouse's RRSP has other fiscal benefits. Notably, if you elect to buy or build a qualifying home, each spouse can withdraw, without penalty, up to $25,000 from their RRSP under the stipulations of the Home Buyer's Plan. The same rules apply to pay for education for one of the spouses through the Lifelong Learning Plan.

It is also possible to contribute to the surviving spouse's RRSP with unused contributions from a deceased person. This contribution can be made during the year of the death or in the 60 days that follow this period, at the latest.

http://money.canoe.ca/money/mymoney/canada/rrsp/archives/2011/01/20110119-135136.html