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BMO Bank of Montreal

February 15, 2012 09:00 ET

BMO's Financial Tip of the Week: Take Advantage of Spousal RRSPs

TORONTO, ONTARIO--(Marketwire - Feb. 15, 2012) - As part of BMO Financial Group's ongoing commitment to financial literacy and 'Making Money Make Sense' for Canadians, BMO is releasing a financial tip every week in 2012. In addition, BMO will be providing daily retirement tips during the month of February.

BMO's Financial Tip of the Week:

Take advantage of spousal RRSPs

Although many Canadians understand the value of investing in a Registered Retirement Savings Plan (RRSP), many are unaware of the significant advantages that a spousal RRSPs provides building your retirement assets.

A recent survey conducted by BMO Financial Group revealed that fewer than 27 per cent of Canadians take advantage of spousal RRSPs.

Spousal RRSPs allow couples to take advantage of income splitting, which helps you defer taxes right away and reduce taxes in retirement.

One spouse uses his or her own contribution room to pay into an RRSP account in his/her partner's name. The person who makes the investment benefits from the tax deduction, while the partner in whose name the RRSP is registered owns the account. If the spouse who makes a contribution has a significantly higher income now, or expects to have a significantly higher retirement income, a spousal RRSP in the name of the lower-income spouse will result in significant tax savings in retirement.

Spousal RRSPs offer Canadians the opportunity to work within the graduated income tax system in order to minimize a household's overall tax burden in retirement. By equalizing each spouse's retirement income, the overall tax bill may be reduced by keeping both spouses in a lower tax bracket. This is one of the few income-splitting options still available to Canadians, and it is beneficial when most people need it - in retirement.

Should a couple divorce, spousal RRSPs are treated the same as the rest of a family's assets. A couple's RRSPs may be evenly split and transferred tax free, so in most instances contributing to a spousal RRSP is no different than contributing to an RRSP in your own name.

For more information on retirement: www.bmo.com/retirement

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