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How your spouse’s RRSP can help you stay home to raise your kids

motherYou just started your career, you’re starting a family and it’s that time of year when the only thing less fun is root canal.

Let me help you figure this out.

They say in life there is only two things guaranteed. Death and Taxes.

Every time you get paid your lending the Government money in the form of taxes which they just take off your pay. Tax planning is finding ways to get them to give you back some of your taxes.

First it’s important to understand what your tax rate is. For example if your income is $84,000 per year the Government will take $24,000 of your income which means your tax rate 28.6%.

To get your taxes back you have to find ways to reduce your income which means your tax rate will also go down and they give you back some of the taxes money back.

One of the most well known ways Canadians have used since 1959 is by making a deposit to their RRSP. Registered Retirement Savings Plan.

It’s the most popular because it’s simple. You put your money in and you get some of the taxes you paid in the previous year back as a refund.

Here’s an easy example. If you’re income in 2016 is $84,000 the Government took $24,000 in taxes or 28.6% of your income.

If you deposit $10,000 into your RRSP before end of February 2017 this will reduce your taxable income by $10,000 and the Government will send you back $3,151 of the taxes your paid.

Now comes the planning. There are actually 2 types RRSP’s?

There is your RRSP and there is a little hidden secret called a spousal RRSP.

A spousal RRSP which has been around for decades hasn’t been used by married couples for years unless someone in the know told you about it.

Spousal RRSP allows the person with a higher income to contribute to an RRSP in their spouses name (spousal RRSP) and get a tax refund at their higher tax rate.

The advantage is it allows you to withdraw money out of their spouses RRSP at a tax lower tax rate in the future.

Now comes the secret that will save you thousands of dollars in the future which I’ve used myself and have shown many families just starting their families how to use.

If you’ve started a family or are planning to have a family soon then here’s a way to have your cake and eat it too.

The spouse earning more income will contribute to their spouses RRSP and when they start having a family the spouse who will reduce their work to part time or stop working to look after their children can withdraw from their spousal RRSP at their now almost tax free.

Example

The spouse earning $84,000 makes a $10,000 deposit to their spouses RRSP and receives a $3,151 tax refund. When the spouse earning less takes time off to stay home and raise their children they can withdraw from their spousal RRSP and pay virtually no tax.

At insuranceforchildren.ca our Family Advisors work with families creating innovative tax planning strategies to help them save for their future and their children’s.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

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*illustrations are reflective of the annual premium amount

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