Advanced Age RRSP Planning

Advanced Age RRSP Planning

Age 71 does doesn’t necessarily mean that you will not continue to have “earned income.” If you do have ongoing earned income there are still a couple of RRSP planning opportunities.

A Review of “Earned Income”

The following incomes qualify:

• Salary or wages
• Author’s or inventor’s royalties
• Executor’s and juror’s fees
• Net research Grants
• Taxable alimony or maintenance payments
• Income from a sole proprietorship
• Income as an active partner
• Net rental income from real estate
• CPP/QPP disability benefits

Over Contribution

Your RRSP contribution limit in the current year is based on your earned income for last year. As a result you may want to consider over-contributing to your RRSP before Dec 31st, and claiming the deduction in January next year. There is a 1% per month penalty on RRSP deposits over the $2,000 over-contribution limit, however, the effect of this will be minor compared to the tax deferral.

Example:

If you have sufficient earned income ($105,556) to qualify for the maximum $19,000 contribution you will realize a maximum net tax savings of $9,102.

• Earned income (this year) $105,556
• RRSP limit next yr. $20,000
• Contribute Dec this yr. $20,000
• Over-contribution penalty* $180
• Tax savings @ 46.41%** marginal $9,282
• Net tax savings $9,102

*1% penalty on $18,000 over-contribution based on $20,000 less $2,000
allowable
**Highest provincial marginal rate (Ont.)

You may also want to consider depositing an additional $2,000 to utilize this limit and tax defer investment growth on this amount.
Don’t forget that you can also use any carry-forward room that you have. These contributions must be made before the end of the calendar year. (March 1st deadline is not available at age 71).

Spousal RRSP

If you have made all your available contributions in the year you turn 71 and continue to have earned income (or you did not use your unused RRSP carry-forward) you may want to consider contributing to a spousal RRSP. If your spouse is under age 71 you can use your contribution room for deposits into their spousal plan. These can be made up to and including the year your spouse turns age 71.

In addition to providing tax deductions for yourself this strategy is an effective method of income splitting. The eventual income received from spousal contributions will be taxed in their hands.
In summary, these strategies will provide an opportunity for you to maximize all of your available RRSP room.  Contact us at (604) 535-4749, or use our contact page.

This article is for information purposes only. It is recommended that individuals consult with their own tax advisor before acting on any information contained in this article.