Maximizing RRSP Contributions for Spouses in their 70s

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When a spouse RRSP is converted into a Registered Pension Fund (RRIF), it remains a spouse account. Interestingly, the resulting combined account must be a spouse account even if two RRSPs or RRIFs are consolidated and is initially just one spouse account.

Spouse RRIFs may be subject to income allocation. If your wife takes a spouse RRIF deduction, the income may be refunded to you as the contributing spouse. This may not be desirable. RRIF withdrawals are subject to minimum amounts based on a percentage of the account value and the age of the account holder. If your wife is taking the minimum RRIF payout for the year, there is no concern about the mapping. However, if they make a withdrawal above the minimum, a refund may be requested to you.

The allocation only applies if contributions have been made in the current year or in the two previous years. So keep that in mind when your wife makes withdrawals, Don. Also, you cannot contribute to one spouse RRSP and then withdraw from another spouse RRIF to avoid mapping. The accounts are all considered to be a single account.

I would like to point out that you don’t have to worry about paying your RRSP contribution on the same day the investments (presumably bonds or guaranteed investment certificates) mature. You can contribute in January 2022, keep the money in cash and later convert the RRSPs to RRIFs. You can even reinvest the maturities on February 8, 2022 and convert the RRSPs to RRIFs later in the year. If investments are held in an RRSP and you convert the account to an RRIF, the investments can be transferred in kind between accounts. You don’t have to make sure the account is cash before converting it to an RRIF.

To make sure I have the answers you need, I have to ask a few more questions about your RRSP contribution strategy, Don. Why should you bother contributing $ 1,800 to your wife’s spouse RRSP? Is your income high enough to be beneficial? RRSP contributions are generally beneficial if your income is high, especially if you expect it to be lower in retirement. Given that your work and retirement years collide given your age, you should have a reasonable sense of what your income will be in your 70s. RRSP contributions cannot be made at any cost – sometimes they are not advisable.

If you are in your fifties or sixties, I think it’s important to estimate how much your income will be in your seventies and eighties. Sometimes RRSP / RRIF Withdrawals are more beneficial than RRSP contributions. If a couple’s spouse dies at a young age, the survivor may have much higher retirement income and pay much more taxes, negating the benefits of RRSP contributions at some income levels. On the death of the second spouse, a high RRSP / RRIF balance can trigger a tax of over 50%, which significantly depletes an estate. The point is that RRSP contributions or RRSP / RRIF tax deferrals can be overrated.

Another consideration is that if you start making withdrawals from your own RRSP, once it has been converted to an RRIF, up to 50% of that income can be allocated to your wife through the pension income breakdown. RRIF withdrawals are eligible pension income that may be shared with a spouse or partner under common law and taxed on the partner’s tax return.

Thanks for your questions, Don. The answers were brief, but as is often the case, there is a lot more to consider. This is one of the hardest parts of financial advice – there aren’t many yes or no answers.

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