Updated: Jun 22, 2021
A spousal registered retirements savings plan (spousal RRSP) is a great way for Canadian couples (married, common law, or same-sex) to split their income during retirement. Spousal RRSPs are a good way to invest equivalent amounts for retirement — even if there’s a major disparity between what each person makes.
One thing to understand: opening a spousal RRSP does not provide you with any extra contribution room. If you earn $100,000 per year, you’ll be able to contribute $18,000, regardless if you put it all in your own RRSP, or put, say $4,500 in your spouse's and $13,500 in your own.
So then why would you do this? Say your hypothetical spouse makes $50,000. Their maximum allowable contribution will be $9,000. If you add your $4,500 contribution to that, you will both have put away $13,500 for the year. But unless you divorce and have to fend for yourselves, why does splitting them up equally matter? Taxes are the reason. If at retirement only one spouse has a large amount of money in an RRSP, that person will pay higher annual taxes. Even if that person takes the minimum annual withdrawal, they'll likely be in a higher tax bracket than their savings-poor spouse. If both have equal nest eggs, they’ll both be paying income tax at a lower marginal tax rate.
There are also tax advantages for a couple with a significantly younger spouse; even if you’re over 71 and, thus, no longer eligible to contribute to your own RRSP, if you have contribution room remaining, you’re free to make an annual contribution to your spousal RRSP through their 71st year.
Do you live in Edmonton, Ft. Saskatchewan, Sherwood Park, St. Albert, Leduc or surrounding area? Let me help you achieve your financial goals. Schedule a free consultation today.