RRSP season just ended, but Prospera Credit Union’s James McCormick, a licensed wealth management professional, believes you should have retirement on your mind more than just at the end of February.
“Retirement planning is a crucial part of a financial plan,” McCormick says. “I like to keep my members up to date regarding all relevant legislation and investment strategies—including those that can help reduce taxes.”
The first strategy McCormick shares relates to a higher income earner contributing to a lower earner’s fund through a spousal RRSP.
“For example, one of my members had an annual RRSP limit of $10,000,” McCormick says. “He could contribute the $10,000 to his personal RRSP or to that of his spouse, who had a significantly lower income. I advised him that if he contributed to his spouse’s RRSP, he would get the tax deduction at a higher rate than his spouse would by contributing to her own RRSP.”
There is a second income splitting strategy to consider if you are 71 or over and receive RRIF income. Depending on the age and income level of your spouse, it may make sense to take 50% of your maximum withdrawal amount and invest it into a spousal RSP.
“I recommended this strategy to one of my members during our recent Personal Investment Plan meeting,” McCormick says. “He was 71, so needed to take minimum withdrawals from his RRIF. His wife was only 68, so she could still hold an RRSP. My member was able to take 50% of his RRIF income—but not the RRIF itself—and invest it into a spousal RRSP.
“This allowed him to reduce his income tax bill that year. Given that his wife is the lower income earner, this also results in a more tax efficient way to maximize the couple’s income at retirement.”
Navigating the RRSP world can be a bit tricky. There are restrictions on how you can use these income splitting strategies, so it’s always wise to talk to someone like McCormick at Prospera. Visit the Prospera website for more information, or call 1-888-440-4480 to book an appointment.
This article is written by or on behalf of the sponsoring client and does not necessarily reflect the views of Okanagan Edge.
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