Planning Your Financial Future With a Partner
Strong relationships don’t happen by chance.
You and your partner will likely have a number of relationship building blocks in place. These could be trust, transparency, and making decisions together.
For many couples, some of these decisions will involve planning finances. And conversations about money aren’t always easy, especially if you’re joining finances in retirement accounts like Registered Retirement Savings Plans (RRSPs).
Below we dive into some things you should know about RRSPs and spousal RRSPs. But, first we share some tips to help you and your partner have conversations around your shared financial future.
Steps Couples Can Take to Create a Strong Financial Future
1. Have the Money Talk and Set Your Financial Priorities Together
Getting married. Buying a house. Having kids. Travelling the world. Retiring financially stable.
These are big life events that require financial planning, and in-depth discussions about money. As a couple, you might have different money beliefs. Have you and your partner discussed what matters most to you when it comes to your financial future? Once you have a discussion about financial goals, you’ll likely have a better idea of where your current finances are, and where you want them to be.
2. Set Realistic Goals
The benefits of setting realistic financial goals are two-fold: you and your partner can build a clear plan on how to reach your goals, and knowing that you can attain them can help you stay motivated.
Setting realistic goals requires you to think about specific financial goals. Short-term goals could include paying down existing high-interest debt, and long-term goals might include saving for retirement.
It’s also important to know what you can afford, and create your financial plans accordingly.
3. Set a Budget
Tracking your spending is a good habit to build, especially when you and your partner are working towards specific financial goals. Here are a few tips to help you get started and stay on track:
- Make a list: List out your current income, savings, and expenses.
- Take advantage of free tools: The Financial Consumer Agency of Canada (FCAC) offers a Budget Planner to help you create a personalized budget according to your financial needs.
- Stick to it: Try to stay as close as you can to the budget you and your partner have set. You can track your expenses by keeping your receipts, and using an expenses calculator to see how much your spending habits add up over time.
- Check in: Take a look at your budget regularly and compare it with your actual spending. If you find that your spending tends to vary, it may be a good time for you and your partner to re-calibrate the budget so that it’s more realistic.
4. Understand the Tools Available to You
Reaching your financial goals will likely involve you saving or investing your money, or both! It’s helpful to know what the differences are between these two paths so that you can make better-informed decisions. This quick video breaks down key differences between saving and investing.
Saving for Your Financial Future
Saving is a great way to help secure your financial future. It’s also beneficial to have an emergency fund for unexpected expenses. Putting your money away in an specialized account, like a Tax-Free Savings Account (TFSA) or an RRSP, are options to consider.
Investing for Your Financial Future
Are you considering investing? Did you know your TFSA and RRSP accounts can hold investments?
Purchasing investments in a TFSA and/or RRSP is one way to get started with investing. It’s important to know the advantages and restrictions of holding investments in these accounts.
There are different types of RRSP accounts you can open, including a spousal RRSP.
Below we dive into the basics of a spousal RRSP account, if you’re looking for more information on individual RRSPs, read this guide.
Spousal RRSP Basics
A spousal RRSP is an account that you can contribute money to for your spouse or common-law partner’s retirement. With a spousal RRSP, one partner is generally the owner of the RRSP (the annuitant), and the other partner is the contributor.
To qualify, you and your spouse or common-law partner must:
- Have lived together for at least 12 months;
- Have a child together by birth or adoption; or
- Share custody and support of your partner’s children.
Here are four key factors of spousal RRSPs.
1. Similarities Between Individual and Spousal RRSPs
Spousal RRSPs and individual RRSPs are similar in a number of ways, including the following:
- Both are accounts registered with the Canada Revenue Agency (CRA), and they’re vehicles to help you save for retirement.
- Like other savings or investment accounts, there are advantages and restrictions with individual and spousal RRSPs.
- Like all RRSPs, your contributed funds are tax-deferred, not tax-free. This means that while you are contributing, the funds you put into an RRSP can be used to reduce your tax. You don’t pay tax on your contributions until you start receiving payments from the plan.
- There is a limit to how much you can contribute each year, based on your individual earned income. You can find your RRSP deduction limit on Form T1028, or by contacting the CRA.
2. Difference between Spousal RRSPs and Individual RRSPs
A key difference between an individual and spousal RRSP is that with a spousal RRSP, there is one contributor, and one annuitant (the RRSP owner). The contributor is the person who is adding to their partner’s spousal RRSP, but the contributor cannot withdraw money from it.
An individual RRSP is registered in your name, and the funds in the RRSP belong to you.
3. Contributing to and Managing a Spousal RRSP
As mentioned above, one partner typically opens and contributes to a spousal RRSP for their spouse or common-law partner. Before opening and contributing to a spousal RRSP, it’s important to research and understand how they work.
Like all RRSPs, there can be tax consequences if the account isn’t used properly. The CRA website is a good source for information. Talking to a registered financial advisor or tax expert is also a good idea.
4. Withdrawing Funds From a Spousal RRSP
When it comes to spousal RRSPs, only the owner (the annuitant) can withdraw funds.
Income earned in an RRSP account is usually tax exempt as long as the funds remain in the plan. However, you generally pay tax when you cash in, make withdrawals, or receive payments from the plan.
If you have more questions about withdrawing funds from your spousal RRSP, contact your RRSP issuer or the CRA.
Key RRSP Reminders for 2020
- This year’s deadline to contribute to your RRSP for the 2019 tax year is March 2, 2020.
- Your RRSP contribution limit for the 2019 tax year is 18% of your earned income, up to a maximum of $27,230 (plus any contribution room you may have from previous years).
Report a Concern
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393 or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.