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Money Can’t Buy You Love. Or Can It?

Chocolate, flowers, candy, a night on the town…or how about an RRSP? When deliberating over what to get your spouse this Valentine's Day, why not consider the gift of enduring love and commitment, by setting up a Spousal or Common-Law Partner RRSP.

One of the most effective tax minimization strategies for couples is to invest in a Spousal RRSP. And best of all, under Canada's Income Tax Act, married couples, same sex couples and common-law partners can make spousal RRSP contributions for income tax purposes.

"A Spousal or Common-Law Partner RRSP effectively allows a couple to engage in income-splitting upon retirement," says Judy Thomson, Director of BMO Mutual Funds. "This strategy can pay off in the long-term by saving you and your partner thousands of dollars in taxes."

Spousal RRSPs allow the higher-income partner to contribute to an RRSP owned by the lower-income partner, helping to equalize retirement assets and reduce the retirement income gap. This is most advantageous for couples earning different incomes, whereby one partner may be earning much less than the other.

The primary reason for establishing a Spousal or Common-Law Partner RRSP is to allow for income splitting at retirement. Sharing or splitting some of these retirement savings means that when the funds are withdrawn from the plan at retirement, the funds are taxed at the rate of the lower-income spouse or common-law partner. This can reduce the couple's taxes at retirement because they will likely pay less tax by withdrawing the same amount of income from two smaller retirement pools than from one larger one.

For example, if one partner expects to have $68,000 in pre-tax RRSP-generated income at retirement, taxes would be about $22,440 at the 2004 Ontario personal marginal tax rate of 33 per cent. But if the couple receives $34,000 each instead, taxes would only be about $8,500 each, saving them more than $5,000.

Spousal or Common-Law Partner RRSPs can be set up at any financial institution that offers RRSPs. The process is similar to setting up an individual RRSP and there are no additional costs. It is important to be educated on the benefits of making regular contributions in a continuous savings plan and knowing the tax implications for withdrawals.

So this Valentine's Day, show your loved one that you're thinking about your future by meeting with an investment specialist at your local BMO Bank of Montreal branch.

Information provided by BMO Retail Investments. For more information visit your nearest BMO Bank of Montreal branch or log on to www.bmo.com/investments.

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