Personal Finance

Spousal RRSP Advantages: Key Information Every Married Couple Should Be Aware Of this

Married couples in Canada have a powerful tool at their disposal to boost their financial well-being – the Spousal Registered Retirement Savings Plan (RRSP).

Despite government changes in 2019, spousal RRSP benefits remain a key strategy for tax reduction and wealth accumulation.

In this comprehensive guide, we delve into three crucial aspects that all married couples should know about spousal RRSPs.

1. Spousal RRSP Contribution: A Tactical Tax Advantage

A Spousal RRSP operates with the lower-earning spouse as the account owner, while the higher-earning spouse makes contributions.

The brilliance lies in the fact that, despite funding the account of the lower earner, the higher earner enjoys a tax deduction based on their tax rate.

This strategic move results in a superior tax break for the couple compared to the lower earner contributing directly.

Furthermore, RRSP rules ensure that the lower-earning spouse retains their contribution room, offering dual benefits – a tax advantage for the high earner and an increased RRSP balance for the low earner.

2. Income Splitting: A Powerful Tax Reduction Strategy

The ability for married couples to split pension income remains a potent tool for tax optimization. Even with the 2019 government changes, income splitting is still allowed. Consider this scenario:

If one spouse has a 50% marginal tax rate and the other a 33% rate, redistributing a portion of the pension income to the lower-taxed spouse effectively lowers the overall tax burden for the couple.

Importantly, common-law couples can also leverage spousal RRSPs for income splitting, highlighting the inclusivity of this tax-saving strategy beyond just married couples.

3. Investing Wisely for Future Withdrawals

While income splitting is a valuable strategy, it’s crucial to generate income to split in the first place.

Letting cash idle in your RRSP won’t maximize future withdrawals. Optimal investments include Guaranteed Investment Certificates (GICs), stocks, and exchange-traded funds (ETFs).

Harnessing the full potential of Spousal RRSP benefits requires strategic planning. By utilizing the tax advantages of contribution, exploring income-splitting opportunities, and making informed investment choices like Fortis stock, married couples can secure their financial future with enhanced wealth accumulation and reduced tax burdens.

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Don’t miss out on the opportunity to maximize your Spousal RRSP benefits – it’s a powerful financial tool that every married couple should consider for long-term prosperity.