Spousal RRSP Explained

A spousal RRSP allows you to contribute money to your spouse or common-law partner's registered retirement savings plan up to your personal contribution limit.

Example: John & Diana are a couple. John's annual income is $180,000, while Diana's is $46,000.

John has an employment pension plan with a value of $300,000, along with additional RRSPs of $60,000. On the other hand, Diana does not have an employment pension and only has $3,000 in RRSPs.

John wants to make an RRSP contribution of  $1,000, and if he does, he will save $407.00, or 40.70% of the RRSP Contribution. Diana also has $850, which she wants to contribute to her RRSP, which will give her a tax savings of $171 (or 20% of her RRSP contribution). If both John and Diana make RRSP contributions to their own RRSP plans, as a couple, they will save $641 ($470 for John and $171 for Diana).

When a contribution is made to the spousal RRSP, the contributor receives a tax deduction.

Using the above example of John and Diana, Diana gives John her $850, and John makes a spousal RRSP of $1,850 (John's $1,000 and Diana's $850). For this Spousal RRSP, John will be the contributor, and Diana will be the beneficiary (also known as the annuitant).

While John will make the same collective RRSP contribution ($1,850), He will benefit from a tax savings of $753 (41% of the $1,850 Spousal RRSP contribution). This tax savings is an extra $112 compared to John ($1,000) and Diana ($850) making RRSP contributions to their own RRSP plans. This increase in tax savings is because John's tax rate is higher than Diana's.

This can help you balance your income as a couple and works best when there is a large disparity between your and your spouse's income.

By contributing to a Spousal RRSP, the higher-earning spouse receives a tax deduction that could lower their annual tax bill.

On the other hand, the lower-earning spouse should get taxed at a lower marginal tax rate when the money is withdrawn from the Spousal RRSP. This means potentially paying less tax on your Spousal RRSP assets at retirement.

With the above example of John and Diana, when it comes to retirement, John's retirement income will be much higher than Diana's if they do not consider the use of Spousal RRSPs. The use of a Spousal RRSP allows the spouse with the higher income (John) to take the tax deduction at the time of contribution, while the spouse with the lower income (Diana) benefits as the tax on withdrawal will be lower than the contributing spouse.

Your Dedicated Accountant can assist you in explaining and planning the use of the Spousal RRSP. Remember to make RRSP contributions before 60 days following the tax year. For example, for the 2022 tax year, RRSP contributions must be made by February 28, 2023.

Frequently Asked Questions (FAQ)

How much can I contribute to a spousal RRSP?

The RRSP Contribution Limited or the Contributor whom is making the RRSP contribution (and yielding the tax savings) is the one effected.

The RRSP Contribution Limited for the RRSP Beneficiary (who RRSP plan receives the actual RRSP contribution) is not effected.

Using the above example of John and Diana, with John being the RRSP contributor and Diana being the RRSP Beneficiary-Annuitant, John's RRSP Limit will be effected by John making the RRSP Contribution, while Diana's (RRSP Beneficiary-Annuitant) RRSP Contribution Limit is not effected.

  • Income splitting: Your Spousal RRSP allows you to potentially reduce the family’s overall tax bill in retirement by more evenly splitting sources of retirement income.
  • Additional tax breaks: Contributing to your spouse's RRSP can help you defer tax. The higher-income earner gets a tax deduction when contributions to the Spousal RRSP are made; and eventually, withdrawals from the plan are taxed based on the marginal tax rate of the lower-income earner.

You can make a spousal RRSP withdrawal whenever you choose to. However, withdrawals are generally included in income and subject to tax in the year of withdrawal.

It's important to remember that it is the annuitant of the spousal RRSP, not the contributor to the spousal RRSP, who is entitled to make withdrawals.

If the annuitant withdraws funds from the Spousal RRSP within 3 years of a contribution, that amount will be added to the contributor's taxable income in the year of the withdrawal.

In the above example of John (RRSP Contributor) and Diana (Beneficary-Annuitant), if Diana withdrawls from her Spousal RRSP with three years of John making a Spousal RRSP contribution, then the amount that Diana's withdrawl must be reported on John's Tax return, (instead of Diana's tax return).

Your Dedicated Accountant is here to answer your questions about Spousal RRSP's or any tax or finance questions.

Keep in mind, that the Wrong Question to ask your Dedicated Accountant is the Question you don't ask!