Do you have clients looking to make the most of their savings in retirement with their married or common-law spouse? The trick here is not knowing to save, but knowing how to save. Which accounts make sense?
Spousal RRSPs
RRSPs are a popular retirement savings vehicle for many Canadians. Can your client contribute to their spouse’s account? Sort of – but not exactly.
They can’t contribute to a spouse’s individual RRSP. That’s a no-no, leading to potential attribution penalties coming by way of a CRA audit.
But here’s the trick: they can contribute to a Spousal RRSP. And there might be a very good reason to do that.
Don’t think that 50 percent pension splitting is enough to fully split your client’s retirement income? Is their employment and future retirement income expected to be significantly higher than their spouse’s? Or vice-versa? That’s when contributions to a Spousal RRSP could be a good idea.
Pension Income Splitting
Your client can transfer up to 50 percent of their eligible pension income to their spouse. However, there’s a catch.
Eligible pension income is different when they’re under 65 than when they’re over 65. Here’s how:
Before 65, pension income splitting is limited to:
- Lifetime annuity payments from a registered pension plan (eg. monthly payments from a private pension)
- Certain death benefits
65 and over, pension income splitting includes:
The same stuff as above, plus payments from:
- RRIF
- Deferred Profit Sharing Program (DPSP)
For most Canadians, this up-to 50 percent splitting is usually enough to split couples’ retirement incomes to maximum efficiency. But maybe one spouse’s income is so high that there is still a gap? Well, there are other strategies…
Splitting your CPP
Splitting their CPP is another option that should be reviewed. If both spouses are 60 years or older, up to 50% of the CPP benefits can be split. The benefit to splitting decreases if both spouses qualify for CPP as both spouses must split the benefits. If one spouse has not contributed to CPP, then the maximum benefit from splitting the CPP would be achieved.
Tax-Free Savings Account (TFSA)
Your client can gift money to their spouse or common-law partner, who would then put it into their TFSA account. This gift will not be subject to the attribution rules.
There are no tax consequences to withdrawing that money… so, make sure it’s at least considered for your overall retirement strategy. It may be better to draw income from this in retirement, instead of paying tax on drawn income from other types of accounts.
Excerpted from CI Direct Investing blog and reprinted with permission.
To learn how you can help clients incorporate robo-investing into their financial plans, check out PPI Valet at www.ppivalet.ca