A spousal RRSP is an RRSP that you make contributions to but the plan is registered in your spouse’s name. You get to claim the tax deduction and the income will be withdrawn by your spouse at retirement.
If your and your spouse’s income are about the same, and you both have similar pensions and RRSP savings, then this wouldn’t be of any benefit to your retirement income planning. However, if one spouse is in a higher tax bracket or expects a large pension at retirement, it would make sense for that spouse to contribute to a spousal RRSP. As a couple they would receive a larger tax deduction that year and the income at retirement would be more even, keeping both of them in a lower tax bracket for further tax savings and possibly avoiding an OAS clawback.
However, there are some things to keep in mind. The contributions you make to both your RRSP and your spouse’s RRSP must be within your maximum contribution limit, you don’t get to use their limit for your contributions to their plan. If a withdrawal is made within three tax years (two calendar years plus the year of withdrawal) then it would be taxed to the contributor, defeating the point of the plan but providing an option to access the money in an emergency.
Some may be thinking that this is no longer needed now that they can split their pensions. I would suggest that you still look into spousal RRSPs, one of the reasons being that if one spouse is in a higher tax bracket, this also means that investing through a spousal RRSP would give you that higher tax deduction in the current year. Equally important is how future politics could affect your retirement. While the current government brought in pension splitting, there’s no guarantee that future governments 10 to 30 years from now will still allow it. With spousal RRSPs, as soon as you contribute to it that investment immediately belongs to your spouse, making this a form of pension splitting that you can still rely on for your retirement years.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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Thanks for the information, yes it’s a good idea to look through this area before the RRSP deadline arrives, in case there are still ways you can save on your taxes.
Good idea!!! I found out interesting info from this article, thanks a lot.
Select a financial representative to assist you in retirement planning. Do this now, no matter your age. You are never too young to begin saving for retirement.