Retirement Planning

Question 1

What is the difference between an individual’s marginal tax rate and their average tax rate?

Answer 1

A marginal tax rate is the rate of tax applied to the next dollar earned.

An average tax rate is the total tax liability/total income

Question 2

What are acceptable examples of income splitting between spouses with intent to equalize the amount of tax paid by each spouse to minimize taxes for the family unit?

Answer 2

Spousal RRSP
Sharing pension credit
Pension income splitting

Question 3

What are the generally accepted principles for accessing different sources of capital in order to minimize taxes and maximize over all income for family unit?

Answer 3

Order of withdrawal:

1. Higher income spouse’s non registered funds
2. Lower income spouse’s non registered funds
3. Lower income spouse’s registered funds
4. Higher income spouse’s registered funds