Spousal RRSPs

A spousal RRSP creates future income splitting in retirement. Within contribution limits, you can make RRSP contributions to either your plan or a spousal RRSP in your spouse's name. There are benefits to contributing to a spousal RRSP, especially if your spouse makes little or no income.

Short-Term Benefit

When contributions are withdrawn from a spousal RRSP, taxes owed are based on your spouse’s income bracket, not yours (saving you the taxes).

This situation is valid provided that no contribution has been made to any spousal RRSP during the year of withdrawal or during the two preceding years (the “three year rule”). Any spousal contributions made within three years that are subsequently withdrawn the income withdrawn is then attributed back to the contributor. If you're the contributor, you'll pay the taxes.

Long-Term Benefit

The capital accumulated in a spousal RSP eventually provides pension income. If it’s expected that your spouse may have less retirement income than you (based on an estimate of the spouse’s pension and RRSP growth), the withdrawn money will be taxed at your spouse's lower marginal tax rate.

Other Benefit

You can claim the deduction, even though the money was contributed to the spousal RRSP, which can save you money on that year's taxes.

Canadian residents are permitted to allocate up to one-half of their eligible registered income, including withdrawals from registered retirement income funds (RRIFs), once the owner of the plan reaches age 65, to their spouse or common-law partner (refer to Income Splitting in Retirement for further detail). As a result, spousal RRSPs are especially valuable as an income-splitting tool for couples that are planning on retiring before age 65.

Who Should Use a Spousal RRSP?

The high-income earner most often uses the spousal RRSP to make contributions for the lower or no income earning spouse/partner. While this strategy works best for many couples, the reverse could be the right choice for others.

All sources of retirement income must be projected and many factors must be evaluated as part of the total retirement income planning process to achieve the best possible balance of retirement income. Common considerations include:

  • Inheritance or sale of a business, which may enhance one spouse's retirement funding.
  • One spouse/partner may have a superior pension plan.
  • Age differential may be an important factor. Potential future earnings and available contribution years deserve attention within the overall plan.
  • If one partner’s RRSP is larger than the other's due to a longer contribution term and/or more favourable investment returns, this situation must be taken into consideration.
  • If one spouse is planning to take time off for education, raising children or any other reason, this time off may affect the overall retirement funding plan.
  • If the contributor earns eligible income after age 71, contributions to a spousal RRSP can continue if the spouse is younger than age 71.