1st year RRSP

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Mike
Posts: 2
Joined: Sun Oct 02, 2005 11:29 pm

1st year RRSP

Post by Mike »

My spouse just started her work in Canada. she has 0 income in 2004 her total income in 2005 will be around 40k. We are planning to purchase a home and would like to know how much she can contribute to her RRSP if she cant at all right now so we can withdraw it after 90 days. Or she can contribute only after she get credit after filling up her 2005 tax return.
If she can't. Can we for example contribute 40000*0.18=7200+2000 in November 1, 2005. So we pay penalty for 2 month (1% per month) and after Dec 31 2005 it will be counted as contribution for 2006 and after Jan 30 2006 we can use this money for house? I think each of us can use up to 20K for first house?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

What you are talking about is making an over-contribution (over and above the $2000 which will not be penalized). This is because her 2005 contribution limit is $0.

You could do this, making sure that she leaves it in the required time, and that you both meet all the other requirements, like the 90 days, etc.

As you point out, the excess over $2000 would only be considered an overcontribution until Dec 31, 2005, after which her 2006 contribution limit would come into play. Sje would pay penalty for 2 months under your scenario.

Alternatively, if <u>you</u> have contribution room, you could make a contribution to a spousal plan right now (and could over-contribute to it, too), and then she could withdraw funds from the spousal plan and it would count towards <u>her</u> $20,000 HBP limit.





<i>nelsona non grata... and non pro</i>
Mike
Posts: 2
Joined: Sun Oct 02, 2005 11:29 pm

Post by Mike »

1) I have my limit left 10k so I can contribute 10k to my account and after 90 days I can withdraw my 20K for house.
But if I contribute to my spouse account she can withdraw it after 3 years I believe? Is it correct?
2) If she makes over contribution she will pay 1% (7200*0.01=72cad) for each month till Jan 1 2006? And after 90 days she can withdraw her 20k or what ever she has for our first house. Or it can be only 20K in total for 2 of us?
Thank you
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">But if I contribute to my spouse account she can withdraw it after 3 years I believe? Is it correct?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Not quite. A contribution to a spousal RRSP can be withdrawn at any time, with the income being taxed in the hands of the contributing spouse rather than the receiving spouse (the annuitant).

But in HBP case, no income is charged, so the withdrawl simply counts against the annuitant's $20k HBP limit (in your case, it would be your wife's).

I'm assuming you don't already have $20K in your RRSP, otherwise it looks like you should have been contributing in previous years to her name so that hse would have some RRSP's by now.

2. Yes. this was answered previously. You can each withdraw $20K from your own RRSPs regardless of how these were funded, as long as the contribution was made 90 days before.

<i>nelsona non grata... and non pro</i>
Carson
Posts: 182
Joined: Wed Oct 27, 2004 1:00 pm
Location: Toronto

Post by Carson »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>


2. Yes. this was answered previously. You can each withdraw $20K from your own RRSPs regardless of how these were funded, as long as the contribution was made 90 days before.

<i>nelsona non grata... and non pro</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Just a point of clarification. The rules say that the funds can come out of the RRSP under the HBP <u>anytime</u> as long as the individual qualifies under the HBP rules. If the funds pulled out are from funds deposited to the RRSP within the last 90 days, then the RRSP deduction for those deposits will be forfeited.

Note, the 90 day rule does not apply where funds have been "rolled into" the RRSP account. For example, funds coming from an IRA into an RRSP under 60(j)(ii) are exempt from the 90 day limitation.

Mind you, try and convince a Canadian bank of this! I've had a heck of a time working through bank red tape to make them understand this distinction in the rules.

Carson
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