Should You Set Up a Spousal RRSP?

Thinking on setting up a spousal RRSP? Should you set up a spousal RRSP?

A spousal RRSP are one of the ways that couples can split income in retirement. It is for the benefit of one spouse, but contributions are made, and deducted, by the other spouse. Think of spousal RRSPs as investment accounts for your spouse’s retirement which allows you to contribute money tax-free each year. Is there a big income disparity? Are you looking to lighten your tax load? A spousal RRSP will ligthen the tax load as it avoids a higher-income earner from having a large pile of retirement savings in their RRSP while the lower-income earner has a small pile. Setting up a spousal RRSP is a good strategy if you expect one spouse to be in a lower taax bracket in retirement because they provide the benefit of balancing retirement income.

What are the advantage?

 1. Big income disparity

Say you’re a big earner. You make $120,000 a year and your spouse makes $60,000. If you and your spouse had RRSPs and only the owner could contribute, you could put $18,000 (maximum allowed each year) into your RRSP while your husband/wife could contribute $9,000 (both amounts represent the maximum). However, with a spousal RRSP, you can even things out. You can contribute $12,000 into yours and $6,000 into your husband/wife. Therefore, you can still take the total $18,0000 deduction on your income tax and your husband/wife can still contribute $9,000 and take that deduction too.

2. A spousal RRSP aren’t just for retirement

A spousal RRSP aren’t just for retirement. Let’s say one parent decides to leave work or to go back to school. When you contribute to a spousal RRSP in advance, this will allow your husband/wife to withdraw money will unemployed and pay only a little bit of tax and save the contributing husband/wife some tax money now.

3. If one spouse is older than the other

It’s also beneficial if one spouse is older than the other. The older spouse can continue to make RRSP contributions to the spousal plan until the end of the year the younger spouse turns age 71 (provided the contributing spouse has qualifying earned income and available contribution room). There are attribution rules associated with early withdrawals from a spousal RRSP.