What’s a spousal RRSP?

Spousal registered retirement savings plans (spousal RRSPs) are one of the ways that Canadian couples (married, common law, or same-sex) can split income in retirement. So why might you do such a thing if your spouse is perfectly capable of contributing to his own RRSP? We’re glad you asked! Spousal RRSPs are a good way to sock away equivalent amounts for retirement — even if there’s a major disparity between what members of the couple earn. 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 partner’s and $13,500 in your own.

So then why would you do this? Say your hypothetical partner 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 or separate and have to fend for yourselves, why does splitting them up equally matter? Isn’t that like married couples splitting the dinner check? Taxes are the reason. If at retirement only one spouse has a large amount of money in an RRSP, they'll pay higher annual taxes. Even if they take the minimum annual withdrawal, they’ll likely be in a higher tax bracket than their savings-poor partner. 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 cradle-robbing 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.