The Spousal RRSP the Forgotten Savings Tool

in RRSP

During this exciting RRSP season (where the main topic seems to be whether you can sex up the argument about TFSA or RRSP) there does not seem too much being mentioned about the Spousal RRSP and its uses in an Bimodal Savings system.

Can I use a Spousal RRSP ?

Let me be clear if you fit into any of the following groups then this advice is not for you:

  1. Not married, if you don’t have a spouse, you can’t have a spousal RRSP.
  2. If you are married but your spouse makes as much as you do
  3. You and your spouse have a good pension plan (which you are sure is going to exist when you retire)
  4. RRSPs are viewed as the devil’s own way to screw you into paying more taxes later in life.

In all those situations the Spousal RRSP really doesn’t do you too much good, however, if you are not one of the previous group, look into a spousal RRSP.

Why Spousal RRSP ?

The spousal RRSP was first introduced as the original income sharing mechanism. It can also be used for income sharing even before you retire (if you are careful, and you don’t care about your retirement funds).

Spousal RRSP Example

A Spousal RRSP Example from Investing For Me

On the retirement side of things, a spousal RRSP is relatively straight forward. It allows your spouse and you to split your moneys for your retirement years.

The way it can be used for income splitting (this is really simplified, do not do this until you consult with a financial professional) is once you put money in a spousal RRSP your spouse can withdraw from it and it will be taxed in their hands after three years. The 3 year settling period (for lack of a better term) is the key to this, after 3 years the money is viewed to be in your spouse’s hands and thus will be taxed with their tax account. Something to think about, but not really a good use of the Spousal RRSP overall (you lose that RRSP room each time your spouse withdraws from the funds). As I said, do not attempt this before consulting with a Financial Professional.

Spousal RRSP

The Spousal RRSP

So let us give a cheer for the forgotten Spousal RRSP. It still can be an important part of your retirement plan!

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{ 6 comments }

{ 6 comments… add one }
  • Zeeshan February 28, 2017, 12:48 PM

    I have a Spousal RRSP, where my wife does not works (is a home maker) and i contribute to it.
    As she is a little younger then me, we get the advantage that we can contribute to it even after my retirement (i.e.until she reaches 71)

    My question is: at the time of withdrawal, her income would always be zero. So at what rate would she be taxed on the withdrawals. What’s your advise here.

    Reply
  • aB February 24, 2016, 11:01 AM

    Why does the second picture appear to be a pair of hand cuffs? ..hah

    Reply
    • bigcajunman February 24, 2016, 11:22 AM

      Happy coincidence? Supposed to be two wedding bands 💍

      Reply
  • My Own Advisor February 24, 2016, 9:39 AM

    Nice flowchart 🙂

    Reply
    • bigcajunman February 24, 2016, 9:42 AM

      Not mine, I borrowed it. Gotta give credit where it is dues.

      Reply

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