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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Spellymelly on September 13, 2016, 03:19:42 PM

Title: [Canada] How do I optimize savings with a stay at home parent?
Post by: Spellymelly on September 13, 2016, 03:19:42 PM
Hi! I'm along time listener, first time caller and I've done my reading but I need some help sorting out a broad savings strategy for my particular situation. I'll lay out the short-ish story then add extra info for the curious. Thank you in advance!
TLDR: We are a Mustachian Family in the middle of producing and rearing young children with a stay at home parent, debt-free (except mortgage) but looking to optimize savings when we get them. How do we prioritize which savings vehicles when our income split is 95/5 between me and my husband? Do we fund his RRSP knowing we'll be savings credits for later? He may not get a conventional job when our youngest is in school is his at-home business is working well.  I don't have much room in my RRSP. Where do we dump money when we get it? We do Couch Potato mostly with TD e-series or Tangerine for TFSA and RRSPs.
We are a family living in Whitehorse, Yukon with 2 kids (4 and 2) and a third coming at the end of October (yay!). We have a mortgage which we pay $1100/month. We have a 2007 Ford freestar van in great shape which we own outright after recently selling our 2010 Versa (we got extra savings from the sale in addition to a [face punch] $1800 tent trailer to facilitate longer camping season]. No credit card or LOC or any other kind of debt.

My salary is about $89,000 gross and my husband is a stay at home dad, which is our number 1 priority. Our number 2 priority is reducing my mandatory work years as much as possible, which is where I need your help.

Pre-first-baby we saved hard and got 20% down on the house we bought (before discovering MMM, so the house itself is probably a bit oversized) but since then we got the house, my husband quit his job in child care and we have settled into this lifestyle until my current fetus goes to kindergarten in about 6 years time. We remain a 1 van family as I bike or walk to work until I deliver the babies, then take my 1 year mat leave. My work tops up my income over EI to 93% of total for 7.5 months, and I prepare a savings account in advance to top myself up EI in the last 4 months, and we have remained debt free through the last two mat leaves, and will for the upcoming one as well.   

So we aren't saving at an accelerated rate right now, but we do accumulate savings to deposit randomly and often enough. My husband makes custom keepsake teddy bears and is a musician which brings in money, we live frugally and I receive an annual bonus at work ($2200), plus all kinds of things like savings from my salary, stuff we've sold from around the house, whatever. It adds up and I have over $5500 in savings to allocate right now burning a hole and hopefully more to come as we frugal it up on mat leave! So we can't destroy contribution room just now but we can set and make goals and then ramp up when the kids go to school and we modify our strategy.

What we have now: My RRSP which is maxed out each year mostly thanks to company (Yukon Government) pension matching. My own contributions live in a TD e-series on the couch potato plan. My husband has an RRSP with PC Financial which is a cesspool of doom and needs to be moved to Tangerine or TD. We both have TFSA, mine a TD e-series and his will be at Tangerine. The kids RESPs are TD e-series couch potato.

So we are not looking for advice on how to save money/be frugal, since we're comfortable with that right now but need assistance navigating what to do with the money we RRSP contribution room is usually almost nil each year, so would a spousal RRSP even help us? Should we try to fund the husband's RRSP, he has tonnes or room and both our TFSA's have lots of room. So, I'd like a to-do list, assuming our RRSPs/TFSAs are sensible, how do we optimize until my husband is making a more substantial salary in 5-6 year's time? We both love a challenge and killing off contribution room in a methodical way would be super motivating!
Do you need any other information? We won't be able to max out contributions quickly, but still faster than most, especially when we know what's best (I don't understand taxes very well).

Thank you! Any questions are welcome!


ETA: Thanks for the questions Pharma! Our TFSAs are pathetic and have tens of thousands in room each (25+ for sure each). My husband's RRSP has approx. $15,000 in contribution room, but all his credits accumulate as his salary is essentially 0. I contribute about $1500 each year to my RRSP but that maxes it out. RESPs are fully funded for each kid each year. We also used the first time home buyers from our RRSPs so we pay that back each year as well. As for annual savings possible each year, we seem to have a kid every two years although this is the last one so it's spotty, maybe 5,000 min? This year will be more due to good luck and good choices.  And yes, lucky to have a wonderful top up! 
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: PharmaStache on September 13, 2016, 04:11:39 PM
How much do you invest each year currently (in your rrsp, tfsas, resps, etc)?

How much room do you have in your tfsas or are they maxed out?

You're lucky to have such a great top up!  Only one I've heard of that is better is the feds.
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: RidinTheAsama on September 13, 2016, 04:57:01 PM
A few general bits of advice:

If possible you will want each spouse's RRSP/pension to be of equal value when you retire.  Say you plan to live off $50k - it's much more tax efficient for each spouse to have a $25k 'income' than for one of you to have the full $50k 'income'. 

BUT, If your husband's income is lower now than it would be in retirement (counting RRSP withdrawals as income) it makes no sense for him to be making contributions now.  RRSP's only make sense when your contributions offset high-tax-bracket earnings to be withdrawn later low-tax-bracket income.

This is where a spousal RRSP comes in (and it doesn't need to be a separate RRSP account, you can make contributions to your husband's account and they can be documented as 'spousal contributions' - likely some paperwork required at your financial institution to make it an option).  Until your husband's income is high enough to make his own direct RRSP contributions worthwhile, you should be trying to fund his account if possible.  Obviously any deposits you are making into your own RRSP to get employer matching and such should be kept up - but you shouldn't be making any additional contributions to your own RRSP.  Instead make them into your husband's RRSP as spousal contributions - it is treated the same way on your tax return.  As you approach retirement look into rules about amount of time between a spousal contribution and the withdrawal by that spouse... I think it's a 2 year minimum... but don't worry about that during the earlier accumulation years.

For any saving beyond what can be done as described above, dump it into TFSAs... and for those it really doesn't matter whose name the account is in or who is considered to be making the deposit.

You mentioned RESPs already so you probably already know how great they are.  Keep maxing out that annual 20% matching grant!  Also, we found out by accident that having the lower income earner listed as primary caregiver makes it more likely for you to be eligible for the "Additional CESG grant"  For us that meant an extra 10% match on first $500 of annual contributions.  I still don't really understand how they decide who is eligible for that or not but ensuring it's the lower income parent's name attached to the file seems to be helpful.

Hope that helps and you're pension situation still allows you to redirect some of those RRSP contributions!
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: PharmaStache on September 13, 2016, 06:39:59 PM
Ok, we are in a similar situation with pension contributions taking up most of our rrsp room! :)  I know nothing about spousal rrsps but it looks like you got a good explanation above!  Not sure if it makes a big difference if it's your rrsp or a spousal, given that it's only $1500/year.  I'd definitely start working on the TFSAs next- maybe make it a goal of trying to do the current year's contributions each year ($5500 for each of you)? 
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: Spellymelly on September 13, 2016, 09:40:53 PM
THANK you both for responding so quickly! I was worried we were missing out on some tax details or something with the RRSPs for my husband. I'll set up a spousal when we shift him away from PC financial and I'll do those meagre contributions anyway to max out my RRSP that way,  and then we can concentrate on TFSAs in the meantime. If he ever ramps up his income beyond what we might want to live off when we are FIRE then we will concentrate on his RRSP then. The TFSA room for both of us will keep us busy for years anyway.
Any other tips to optimize our lopsided income (charity donations all done in my name presiumably, etc) is much appreciated! We are better at saving than at strategizing. 

Great tips, thank you both! I welcome your input any time!
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: okits on September 14, 2016, 01:14:10 AM
I agree with contributing to a spousal RRSP for your husband (for the sake of clarity I would open a separate account where the only money invested is contributions from you.  Commingling contributions or accounts may have unintended consequences).

Your husband can contribute to his RRSP now but wait to take the income deduction (save it for a year when he'll be in a higher tax bracket).

I believe you are not permitted to contribute to another person's TFSA but you can give him the money to make the contribution into his own account (a nit-picky point but CRA is all about the rules!) After the spousal RRSP I would fill up the TFSAs next.

More relevant when you have taxable accounts, but one way to tax-optimize is for the higher earner to pay all living expenses and the lower earner invest all his income.  The earnings from those non-registered investments will be attributed to the lower earner and taxed at his lower rate.

UFile lets us transfer charitable donation tax credits between spouses, so I assume that's a legal move.  The tax credit is based on the amount of donations claimed in that tax year, not the person's income, so it really doesn't matter as long as the person claiming them has taxes owing where you can apply those credits.

On the off chance neither of you has claimed a charitable donation since 2007, this is juicy:
Title: Re: [Canada] How do I optimize savings with a stay at home parent?
Post by: Spellymelly on September 14, 2016, 09:27:38 AM
Hey, thanks OK Kits. It looks like we're best to trickle in spousal RRSP to my husband with whatever small space I get each year, then concentrate on his/our TFSA as much as we can in the meantime. I was wondering about the value of those deferred tax credits from his RRSP. We do expect his income to increase once our youngest starts school but that's about 5-6 years from now. It feels really weird to leave my husband's RRSP contribution room there but I suppose in the end as long as the money is getting stashed, that's what matters most.

Thanks for the tip about him contributing to his own accounts, we do make sure of that but I didn't think of it as a rule so that was lucky. And we have been contributing to charity regularly, our favourite baby gift is a Plan Canada donation to support maternal and baby health  in developing countries and there's been a lot of babies around lately!

It sounds to me like there's not too much more we can do to optimize the priority of our buckets until we accelerate savings and start maxing out the taxable accounts which is a few years away for us. Thanks for all comments, I'm always happy to hear from everyone and it's been very useful to me. If you have something else to say, please do!