Why You and Your Partner Should Open a Spousal RRSP + MORE Feb 8th

I am 52 years old and have $200,000 in my RRSP and $5,000 in my TFSA. I have a lot of unused TFSA room, but no new money to contribute. Does it make sense to withdraw some money from the RRSP each year, and then move it over to the TFSA? I realize the tax implications, so perhaps the best thing to do is always withdraw under $5,000 so I pay only 10% tax? My annual income is about $75,000. — Alex
There are situations when it might make sense to withdraw money from your RRSP and recontribute it to your TFSA. But these are rare, and Alex, I don’t think this is one of them.
You recognize that RRSP withdrawals are taxable, but I think you have underestimated the amount of tax you will pay. When you make an RRSP withdrawal of $5,000 or less, your brokerage is required to withhold 10% for income taxes. (The withholding tax rate is 20% on withdrawals between $5,001 and $15,000, and 30% on larger amounts. Rates are higher in Quebec.) But that doesn’t mean your total tax bill for the withdrawal is limited to 10%…

The Canadian government offers plenty of incentives for long-term savers, including couples saving for retirement. Sure, both of you can still open your own individual Registered Retirement Savings Plans (RRSP). But if you are looking for a way to manage your tax bill as a couple, as well as build a bigger nest egg for your partner, spousal RRSPs can make a lot of sense. Here’s what you need to know about using this tool.
What is a spousal RRSP?
A spousal RRSP is a qualified retirement savings plan that you set up for your partner. You are able to make contributions to the RRSP, however, your spouse is the actual owner. The point of the spousal RRSP is to help you even out any gap in income between the two of you during retirement, while allowing you a tax break right now.
So you can contribute to the RRSP and receive the tax deduction today. During retirement, your partner withdraws the money and pays the income tax that results from the withdrawal.
Who would benefit from a spousal RRSP? Who wouldn’t?
You’ll likely get the best results from a spousal RRSP if there is a large disparity in income between you and your partner…

Diving into your garbage is a great way to find clues for where you could be saving money, writes Gail Vaz-Oxlade.

TFSAs win when it comes to flexibility. (Flickr)
Q. TFSA or RRSP, which one is more popular today—and why? – Phyllis D.
The RRSP marked its 50th-anniversary last year —but it looks like its Golden Age has already passed. While the RRSP still has more contributors than the TFSA, its lead is narrowing. According to StatsCan, the number of RRSP contributors aged 25 to 54, “declined by 16% from 2000 to 2013, from five million in 2000 to 4.2 million in 2013.”  The dollar amounts are on the decline as well. RRSP contributions hit $30 billion in 2000 but fell to $22.5 billion by 2013.
A part of that decline can be blamed on the Tax-Free Savings Account, which was introduced in 2009. StatsCan says there was a slight decline in RRSP use over the last few years and that, “coincided with an increase in the number of individuals who contributed to a TFSA, from 2 million in 2009 to 3 million in 2013.”
Why does the TFSA have a leg-up?  Flexibility is one thing. The RRSP was designed for retirement savings, while the TFSA works well as a place to save for retirement and anything else—a dream vacation, a new car, or a house down payment…

Diving into your garbage is a great way to find clues for where you could be saving money, writes Gail Vaz-Oxlade.