Five RRSP Tax Tips For Your Family

by Pam on August 11, 2010

While reading 101 Tax Secrets For Canadians I stumbled across some really helpful tax tips that could save your family money.


1. Have your children file a tax return as soon as they start to earn an income, even if they aren’t earning a lot.  By doing so, they will start to accumulate RRSP contribution room which will result in future tax savings.  This is also a great learning experience for your children as they have input into their finances.

2. Rather than focusing solely on paying down your mortgage, consider contributing to your RRSP instead unless the interest rate on your mortgage is 3% higher than the expected rate of return in your RRSP and you are committed to contributing your annual mortgage payments to your RRSP once your mortgage is paid off.  If you don’t meet the two criteria mentioned, then the tax savings and tax deferred growth in your RRSP will set you up for more financial success than paying off your mortgage first.

3. Make sure you claim your RRSP deductions in a year that will most effectively maximize your tax savings.  You don’t have to claim your RRSP contributions in the year that you make them.  In fact, you can carry them forward to any future year.  So if you know you will be earning more in 2011, then it’s better to only claim a portion of your RRSP contributions for 2010.  (It’s often wise to claim just enough to bring your income below the lowest federal tax bracket and claim the remainder of your contributions in a future year.)

4. The higher wage earner should consider contributing to a spousal RRSP in order to lower income taxes payable and split income at retirement.  Another way to use the spousal RRSP is in the case where a couple is planning on having children in the next 3 to 4 years and they already know that one parent will remain at home full time.  For instance, if you know you want to be a stay-at-home Mom, consider having your husband contribute into a spousal RRSP in your name.  He benefits from the income tax deduction now, and then down the road when you are no longer working, you can withdraw funds from the spousal RRSP and the money will be taxed in your name as long as the money has been in the account for at least 2 calendar years.  When you take the money out, you will be at a much lower tax bracket and may not even have to pay tax on the money withdrawn.

5. If you are entitled to a bonus through your work, unless you need the money right away, consider having your employer put it directly towards your RRSP.  By doing so you won’t have to pay income tax on your bonus so the full amount of money will be invested and the growth is tax deferred.

There are many tax saving strategies out there for using an RRSP.  Make sure that you are making the most out of your RRSPs in order to save you and your family money.

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