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| | WHAT IS AN RRSP? RRSP... It’s all about quality of life
What is an RRSP?
What is a spousal RRSP?
What is an RRSP?
An RRSP is a retirement savings plan registered with the federal government. Each year, you may contribute a certain amount that is deducted from your annual income. As a result, you pay less income tax while setting money aside for retirement.
Why contribute to an RRSP?
Did you know that you will need about 70% of your income for a comfortable retirement? And that’s assuming your home is fully paid and that your living expenses decrease. Of course, you could do with less; it all depends on your lifestyle.
What will be your sources of income?
Your Old Age Security benefit, your Québec Pension Plan (QPP) and your private pension plan, if you are lucky enough to have one. The problem is that right now both the CPP and the QPP are already not enough for retirees with no other source of income. Your government pensions are basic income that you will have to supplement with personal savings.
That's why RRSPs are so important.
What is a spousal RRSP?
This is an RRSP issued in the name of your spouse, to which you may contribute a given amount each year.
You can contribute to your spousal RRSP until December 31 in the year that he or she turns 71 no matter what your age, provided you have taxable income.
Retirement benefits
You will pay less income tax if you each withdraw small amounts from each of the two RRSPs instead of withdrawing the full amount from a single RRSP. This is called "income splitting" and it is one of the greatest advantages of a spousal RRSP.
Immediate benefits
You may invest all or part of your eligible contribution amount each year in an RRSP held in your spouse's name. This contribution will bring you the same tax advantages as those offered by the Solidarity Fund QFL RRSP. You're therefore entitled to the tax savings normally associated with a registered retirement plan. But by purchasing shares in the Fund and registering them in a spousal RRSP, you are also entitled to a 30% tax credit. This additional credit can be up to $1,500 per year, which corresponds to a $5,000 contribution.
The bottom line: You increase the family's retirement income while immediately reducing your income tax payable.
Share redemption
The usual redemption criteria apply to the spousal RRSP. When you hold an RRSP opened by your spouse, you are deemed the RRSP's beneficiary and the holder of the shares. You must therefore submit your own application for share redemption.
For more information, speak with the local representative in your workplace or consult the Redemption Conditions section.
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