# RRSP question: borrow to max contribution?



## rglempera (Apr 2, 2011)

Hi, I'm trying to decide how to handle RRSP contributions for my wife. Here's the situation: My wife did not work at all in 2013, she was on maternity leave from Jan 1 to Aug 30, and then unemployed the rest of the year. Her only 2013 income was EI, for $17k. Based on her 2012 income, her contribution limit for 2013 RRSP is $8k. She started working again Jan 1 this year, and will continue to work until Aug 1, then go on maternity leave again. Her 2014 income will be roughly $53k ($43k from work, $10k from EI). I anticipate her RRSP contribution allowance for 2014 will be ~$1,450 (18% of the $17k she made in EI in 2013).

We don't have the cash available to hit her $8k contribution limit at the moment, but could sell some stocks and get it freed-up in ~3-4 weeks. So I'm asking myself "Should I borrow $8k on my HELOC (2.5%) and pay it back in a month, or should I carry forward the $8k for her 2014 return?"

I'm thinking I should carry it forward and contribute $9.5k next year. In addition to not paying interest on the $ borrowed, I believe it would have more impact next year since my wife will be in a higher tax bracket for her 2014 return. Does that make sense, or should I reconsider short-term borrowing to top up in the next few days?

Thanks, RG


----------



## wendi1 (Oct 2, 2013)

Your wife does not have enough income this year to generate a good refund from an RSP contribution. So, don't borrow from your HELOC. This is a bad idea, anyway - the interest is not tax deductable.

If you want to contribute some cash this year, you don't have to take the credit this year, you can move it to a future year if you like. But have you considered opening a spousal RSP for her? It goes against your contribution limit, not hers, but you get the tax refund.

What *I *would do is set up a monthly contribution to her RSP starting now, at $900 a month, take the contribution next year or in a future year, depending on what she earns in 2014.


----------



## CanadianCapitalist (Mar 31, 2009)

Your spouse earned only $17K in 2013, so it doesn't make much sense to claim a RRSP deduction for 2013. I'm not so sure that she should claim a RRSP deduction for 2014 either. You'll have to run the numbers but it may make sense for her to carry contribution / room to a future year when she'll have a full year of income. Also, I'm pretty sure EI payments are not earned income, so there won't be any RRSP room created from that source.


----------



## OptsyEagle (Nov 29, 2009)

Also, if this next maternity situation is something that can be rejigged and slightly rescheduled (most are not) you should look into the maximum income allowed under the EI program. If I recall, EI is set up that if you earn enough money throughout the part of the year where you are working, they will require you to pay back the EI they give you. I just don't know at what income level this happens, but I suspect your wife is very close.


----------



## Four Pillars (Apr 5, 2009)

OptsyEagle said:


> Also, if this next maternity situation is something that can be rejigged and slightly rescheduled (most are not) you should look into the maximum income allowed under the EI program. If I recall, EI is set up that if you earn enough money throughout the part of the year where you are working, they will require you to pay back the EI they give you. I just don't know at what income level this happens, but I suspect your wife is very close.


I don't think this is true.


----------



## rglempera (Apr 2, 2011)

Thanks for the replies. I already reached my personal contribution limit, so I don' think a spousal RRSP makes sense. Sounds like I should start contributing soon to take advantage of tax free earnings, but hold off on claiming the deduction until she has a full year of income (especially if EI doesn't free up RRSP room as CC mentioned). 

She will likely have a full year of income (~$75-80k) in 2015...assuming we stop with 3 kids  Just a few questions to make sure I'm understanding:

1) If I contribute $8k on April 1st 2014, I can defer claiming that deduction until her 2015 return (in early 2016)? I don't need to apply it to her 2014 return?

2) CC you mentioned running the #s to decide if I should apply to 2014 or 2015...can you explain how to do this? 

Many thanks, RG


----------



## rglempera (Apr 2, 2011)

Four Pillars said:


> I don't think this is true.


I read something about this: http://www.servicecanada.gc.ca/eng/ei/information/repayment.shtml

If this applies to my wife, looks like the threshold is just over $60k income, which I'm assuming does not include income from EI. If that's the case, we should be fine for both 2014 (~$43k income) and 2015 (~$25k if she starts working Sept 2015).


----------



## Four Pillars (Apr 5, 2009)

rglempera said:


> I read something about this: http://www.servicecanada.gc.ca/eng/ei/information/repayment.shtml
> 
> If this applies to my wife, looks like the threshold is just over $60k income, which I'm assuming does not include income from EI. If that's the case, we should be fine for both 2014 (~$43k income) and 2015 (~$25k if she starts working Sept 2015).


It says right on that page that the limit doesn't apply for special benefits ie mat leave. You can have a million $ in income and still get mat leave bennies with no clawback.


----------



## Eclectic12 (Oct 20, 2010)

rglempera said:


> ... Sounds like I should start contributing soon to take advantage of tax free earnings, but hold off on claiming the deduction until she has a full year of income (especially if EI doesn't free up RRSP room as CC mentioned) ...


Maybe it's wording but just to be clear, the RRSP isn't tax free, it's tax deferred. So yes the gains within the RRSP won't be subject to tax but when withdrawn, the money taken out will be reported as income.

Secondly, it's not so much that EI "frees" up RRSP room - it's that since EI isn't earned income, it won't be used to calculate new RRSP contribution room (i.e. it won't create any, where employment income or other income would).

Thirdly - while I agree with not borrowing in this situation, I'm a little surprised that selling stock would take so long. I can sell today, have it settle by Friday and then Friday through Monday use the Web to contribute to my RRSP.

Finally - if you have stock but don't have money, why not contribute the stock to the RRSP? 

You'll have to pay the capital gains but it will save a commission to sell and then when in the RRSP a commission to re-buy (assuming you plan to continue holding the stock). If you sell something for a capital loss between now and Dec 24th, 2014, the loss added to the gain might reduce or eliminate the taxable income.
http://www.theglobeandmail.com/glob...much-into-my-rrsp-what-to-do/article12287923/


Cheers


----------

