Common Perspective:

Common perspective is:

  • Maximize RRSP!
  • When it comes to savings for retirement, nothing can beat RRSP!

 

Reality:

Always consider below before investing in RRSP:

 

  • Current income level and expected tax bracket upon retirement. RRSP is not advisable for those in the lower tax bracket and those who expect to be in higher tax bracket upon retirement

 

  • Other investment tools are also available – Tax Free Savings Account (TFSA). Its tax-free nature might help you balance your tax bills upon retirement

 

  • Possibility of converting 100% taxable income to 50% taxable capital gain. Only 50% of the Capital Gain is added to your income and taxed at marginal tax rate

 

  • Possibility of converting 100% taxable income to lighter taxed Canadian dividend income. You might lean more on Canadian dividend income to field a lighter tax bill

 

 

Spousal RRSP

Consider spousal RRSP before investing. A spousal RRSP allow you to contribute money in your spouse’s RRSP.

Advantages of Spousal RRSP:

  • By contributing to a spousal RRSP, the higher-earning spouse receives a tax deduction that could lower their personal tax bill for the year.
  • It allows couples to split income after they retire. This helps reduce your tax load upon retirement
  • It helps if spouse decides to leave work and stay home or go back to school. Contributing to spousal RRSP in advance will allow the person low income spouse to withdraw money while unemployed and pay a small tax bill

 

 

Disclaimer:

The above information is intended to provide general information. It should not be used without consultation from accounting and tax professionals. Capital Business & Tax Consulting will not be held liable for any problem that may arise from the use of this information.