Saving for retirement is a top priority for many Canadians, and a spousal RRSP can be an important tool for couples looking to maximize their retirement fund while minimizing their taxes. Whether you’re looking to balance your retirement incomes or simply get the most out of your tax breaks, spousal RRSPs are a savvy strategy that can help couples retire richer, together.
This article will explore how they work, who can benefit and potential pros and cons.
Key Points
- A Spousal RRSP is a retirement savings account owned by one spouse (the annuitant) and funded by the other (the contributor).
- The contributor is the only one who can contribute to the account, up to their individual yearly RRSP contribution limit.
- Spousal RRSPs can benefit couples by helping them save on taxes now and in retirement.
What Is A Spousal RRSP?
A spousal RRSP is a registered savings vehicle that operates much like an RRSP, meaning that contributions reduce your taxable income for the year and help you save for retirement.
However, there’s a key difference: the account is registered in your spouse’s or common-law partner’s name, not yours. In this arrangement, one partner (the contributor) makes contributions to the spousal RRSP, but the plan is owned and controlled by the other partner (the annuitant).
| Note While the spousal account is in your partner’s name, they can’t make contributions; only the contributor can. The contributor uses their own RRSP contribution room to make deposits, and they receive the tax deduction for those contributions on their income tax return. The annuitant (your spouse or partner) owns the account and makes all withdrawals, but cannot contribute to the spousal RRSP themselves. They are, however, allowed to make contributions to their own personal RRSP up to their yearly allowable maximum. |
Spousal RRSPs are primarily designed for couples where one partner earns significantly more than the other. The higher-earning spouse contributes and claims the tax deduction, while the lower-earning spouse owns the account and will eventually withdraw the funds. This strategy can balance retirement income between partners and lead to significant tax savings, both now and in retirement.
Who Is Eligible For Spousal RRSP?
Any married or common-law Canadian couple can open a spousal RRSP. Another benefit of this savings vehicle is that even if the contributor is over the age of 71, they can still make contributions to their partner’s RRSP up until December 31 of the year their partner turns 71.
How Does It Work?
The higher-earning spouse makes contributions to the spousal RRSP based on their yearly allowable contribution amount. When you contribute to a spousal RRSP, your total contributions to both your own personal RRSP and your partner’s spousal RRSP cannot exceed your overall RRSP limit for the year.
Come retirement time, the lower-earning spouse can make withdrawals from the spousal RRSP and get taxed at a lower tax rate. So not only will the higher-earning partner reduce their tax burden in the year of their contribution, but the couple can also potentially benefit from lower taxes in retirement when withdrawals are made.
Learn more: Best RRSP Accounts In Canada
Tax Benefits Of Spousal RRSP
A spousal RRSP offers distinct tax benefits for both partners in a couple, making it a powerful tool for retirement planning and tax savings:
For The Contributor
The higher-earning spouse who contributes to a spousal RRSP will enjoy a tax deduction in the amount they contributed, which will lower their tax bill in that year. For example, if they contribute $15,000 to a spousal RRSP, their taxable income for that year will be reduced by $15,000.
Another potential benefit is that, for those over the age of 71 who are no longer allowed to contribute to their own personal RRSP, they can still continue to contribute to a spousal RRSP as long as the account owner is under 72.
Reducing income can also help prevent Old Age Security clawbacks by keeping the higher-earning partner’s income below the OAS recovery threshold.
For The Spouse Receiving The Funds
The partner who owns the spousal RRSP benefits by having a larger amount of retirement savings in their own name. When they withdraw funds in retirement, those withdrawals are taxed at their own (often lower) tax rate, rather than the higher-earning spouse’s rate.
Learn more: Tax Benefits and Credits For Seniors
Contribution Limits
The contribution limits for a spousal RRSP are subject to the same rules as a regular RRSP and are based on the contributor’s annual RRSP limit, not the spouse’s.
| RRSP Contribution Room 2025 For 2025, the maximum you can contribute to an RRSP is the lesser of 18% of your previous year’s income or $32,490, plus any contribution room you have left over from remaining years. Learn more: RRSP Guide |
You can’t contribute more than your annual RRSP limit.
For example, if your allowable contribution amount for the year is $15,000 you can’t contribute $15,000 into your own personal RRSP and also into the spousal RRSP respectively. You could, however, allocate $10,000 to the spousal RRSP and $5,000 to your own RRSP, but your combined contributions must not exceed $15,000.
| Note While the owner of the spousal RRSP can’t make contributions to the account, they can contribute to their own personal RRSP up to their annual limit. As a result, the total RRSP holdings in the annuitant’s name (their personal RRSP + their spousal RRSP) can exceed what the annuitant alone could contribute using only their own personal limit. The key is that each person does not go over their individual annual RRSP contribution allowance. |
Advantages Of Spousal RRSP
A spousal RRSP offers numerous benefits for couples, especially when there’s a large difference in incomes:
- Income splitting: The main advantage of a spousal RRSP is income splitting. Because the higher-earning spouse can contribute funds to their lower-earning partner’s spousal RRSP, they can reduce their tax burden, which means the couple as a whole can put more money aside for retirement.
- Lower tax burden in retirement: The withdrawals from the spousal RRSP made in retirement will then also be taxed at the lower-income spouse’s rate, rather than the higher rate of the contributor.
- Helps lower-income spouses build retirement savings: The lower-earning spouse, who would otherwise possibly struggle to save for retirement, can play a major role in building their family’s retirement safety net, which in turn can play an active and meaningful role in shaping the couple’s financial future.
- Potentially contribute for longer: Even if the higher-earning partner is over the age of 71 and would normally not be allowed to contribute to an RRSP, they can nonetheless potentially continue to add funds to the spousal RRSP as long as the annuitant is under the age of 72. That’s because the cut-off for contributions to a spousal RRSP is determined by the age of the account owner, not the contributor.
Considerations and Potential Pitfalls
While spousal RRSPs offer numerous tax and financial benefits, there are some rules and potential drawbacks to keep in mind:
- The Attribution Rule: It’s vital to plan your withdrawals wisely. If the partner who controls the spousal RRSP (the annuitant) makes a withdrawal within three calendar years of the last deposit, the CRA will tax that withdrawal as income belonging to the contributing spouse, not the annuitant, which could result in a big tax bill. This rule is to prevent short-term tax avoidance.
- Eligibility for Old Age Security: While a spousal RRSP can help reduce the risk of OAS clawback by reducing a high-earner’s income, withdrawals are considered taxable income and could bump a partner above the OAS earning threshold if not managed cautiously.
- Poorly Managed Funds: The annuitant has legal control over the account and could manage the account poorly by making large withdrawals and spending the money in ways contrary to the contributor’s wishes. As a saving strategy, a spousal RRSP only works well if both partners are on the same page financially.
How To Open A Spousal RRSP?
You can open a spousal RRSP at most banks, credit unions or online financial institutions such as Tangerine. The account is registered in one spouse’s (or common law partner’s) name, but contributions are made by the higher-earning partner.
Bottom Line
A spousal RRSP is an effective tool for retirement planning and income splitting in Canada. It allows the contributor to offset their higher income and reduce their tax burden in the year of contribution, while future withdrawals by the lower-earning spouse will get taxed at a lower marginal rate. This savings vehicle helps couples more fairly balance their retirement savings, as well as reduce their tax payments in retirement. The key to maximizing the benefits of spousal RRSPs is careful planning around contributions and withdrawals, as well as an understanding of potential pitfalls like the attribution rule.
