Each year, you are allowed to contribute up to 18% of your previous year’s income to an RRSP. This amount is claimed as a tax deduction and therefore reduces your taxes payable.
Most financial experts agree that you’ll need approximately 70% of your pre-retirement income to maintain a similar lifestyle when you retire. In any case, you can be sure that your Québec Pension Plan (QPP) or Old Age Security benefits will not be enough.
Unless you have a private pension plan, it is important to contribute to an RRSP to avoid financial difficulties in retirement.
A spousal RRSP allows you to maximize your retirement income while saving you taxes now and later.
In a spousal RRSP, you make the contribution and get the tax deduction but the spouse owns the plan. This is a savings vehicle worth considering if one of you will receive significantly more money than the other in retirement, either because of a private pension plan or because there will be more money in one spouse’s RRSP account.
As an example, if each spouse declares a personal retirement income of $40,000 per year, the couple will pay less tax than if one person declares $80,000. In this way, the couple ends up with more disposable income.
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