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Are spousal RRSPs still useful?

Spousal RRSPs have traditionally been used as an income-splitting strategy in retirement.  You can contribute to your spouse’s RRSP but claim the tax deduction yourself. Your total contributions (to your own and your spouse’s plans) are subject to your own RRSP contribution limits. In retirement, withdrawals are taxed in your spouse’s hands rather than yours, as long as the contribution has remained in the plan for at least three years. So you benefit from their lower tax rate in retirement, while reducing your own tax liability during your working years. But, in October 2007, the government introduced new pension splitting rules that allow Canadians to split pension income with their spouse. Here are situations where the spousal RRSP is still useful: • If you are planning to retire before age 65 and don’t have a registered pension plan; spousal RRSPs allow income-splitting before age 65 whereas pension income-splitting normally begins at age 65 • If you are saving for a home (each person can withdraw $25,000 under the Home Buyers’ Plan) • If you’re 71 or older and can no longer contribute to your own RRSP, you can still contribute to your spouse’s RRSP if you have earned income and your spouse is younger than 71 • If you and your spouse want to make the balance of assets in your household more equal.

The benefits of a Group RRSP

Providing further benefit options to your employees can go a long way in showing them you value their efforts, and it can also attract skilled employees.  A Group RRSP is a low-cost, highly effective way of supporting your employees’ efforts to increase retirement savings and wealth.  As the employer, you pay no fees in establishing a Group RRSP. The plan design can accommodate any number of participants and allow for various contribution levels and different investment profiles.  Setting up a Group RRSP is very easy and simple to administer through payroll deductions.  The employee’s contribution is withheld at source as a payroll deduction. You may top up this contribution with an employer contribution based on any incentive criteria (this contribution is completely optional, but is also a deductible expense for the company). Because the contributions are made regularly, the employee receives the related income tax deduction at the time of each contribution, instead of when filing a return at tax time. This results in a tax savings on each pay-cheque, which reduces the employee’s at-source deductions. I will provide any ongoing support needed to ensure that your plan is operating efficiently. When employees join your Group RRSP, I am happy to offer free investment planning advice to help them achieve their retirement savings goals.