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  1. #1
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    Sleepless in London's Avatar
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    Aug 2006
    land of disorganization
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    Default Claiming RRSP contributions in later years

    Hi Jane,
    Currently my dp does not have any taxable income, and will not for a few more years. I am wondering if I interpreted my computer program correctly in that if there is rrsp eligable room,one can contribute to a rrsp, but not claim it that year.
    Could we use some of dp eligable room, start earning tax free interest,but not claim until dp had taxable income to put it against?
    Or as an alternative put in one of the tax free accounts if this is not possible.
    Advice appreciated.

  2. #2
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    strongmommy's Avatar
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    Sep 2006
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    Hi there

    You're reading your software correctly - you can make a contribution and deduct it later. The balance carries forward indefinately and will show up on the Notice of Assessment as undeducted amounts. Once there is taxable income (any kind) you can deduct it against that.

    The biggest refund bang comes where you're marginal bracket is higher. Depending on the level of income once back to work - and the length of time between now and then - you may be better off putting that money in a TFSA. I'm a growing fan of these but personally like to treat them as more of a retirement or medium/longer term savings account. The deferral on the income isn't huge if you're just putting in and taking out all the time.

    An RRSP contribution makes the most sense (from a math and tax perspective) when your marginal rates in the year you deduct them are higher than you expect at retirement. It's still a good vehicle if your currently in the lowest bracket but chances are you'll be in a higher bracket at retirement because CPP and OAS add about $15K to your income once you're collecting them.

    One thing to consider if the idea is retirement funding is that if one partner has a decent pension/RRSP plan then pension splitting shifts income for both into lower brackets and the TFSA balances can supplement the income with completely tax free money likely saving an OAS clawback and overall family tax.

    People much smarter than I have been debating which is better for 2 yrs now and there really isn't a right answer. The best one depends on the level of income the person expects once back to work and what the purpose of the contribution really is.

    So a for sure in making a contribution now and letting it grow in an RRSP and then making the deduction later and an it depends with the RRSP or TFSA decision

    Let me know if there is anything else!

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