you have a spousal RSP it is the same as a regular RSP, except that your
spouse, often referred to as the "contributing spouse" is typically
the person making contributions to your plan.
When used correctly,
spousal RSPs can be an effective tool in planning for a couple's retirement.
To help you take advantage of this strategy, Scotiabank offers answers to
a few important questions:
- What is a
- Why use a
- How does a
spousal RSP work?
- What are attribution
- Can I make
contributions to my spouse's existing RSP?
What is a
A spousal RSP
is an account into which one spouse makes contributions to the other spouse's
RRSP who is in a lower tax bracket and the owner of the account. This means
the owner spouse has control over the account in terms of investment decisions.
Why use a
The main advantage
of a spousal RSP is to help divide assets that will produce future income
and thereby reduce the family's overall tax burden. Typically a couple with
one wage earner is best suited for a Spousal RSP.
How does a
spousal RSP work?
the income between both spouses. Typically, the higher income spouse will
contribute to a spousal RSP and receive a tax deduction at a high marginal
tax rate. Then, in retirement or earlier, when the other spouse withdraws
that money to produce income, it will generally result in a smaller income
and be taxed at a lower tax rate.
What are attribution
The Income Tax
Act uses the attribution rule to prevent spouses from paying less tax than
is prescribed. Any withdrawal within two calendar years after the year in
which it was contributed will be taxed in the hands of the contributor and
not the spouse.
Can I make contributions
to my spouse's existing RSP?
The short answer is yes. However, as soon as you combine or co-mingle your
spousal contributions with their regular contributions, the account is considered
a spousal account and subject to the attribution rules. In this case, if
a withdrawal is made from the account, it may be taxed in the hands of the
your circumstances, it may be more appropriate to have two accounts so,
if you need to make a withdrawal before retirement, you can make it from
the account that makes most sense for tax purposes.
If you're interested
in reading more articles like this with expert advice visit www.scotiabank.com.
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the closest Scotiabank branch is near you visit www.orleansonline.ca/Scotiabank.