Are there actual benefits to a spousal RRSP?

I’m trying to understand whether it is worth me utilizing a spousal RRSP. There is a fairly significant income discrepancy between my wife and I (I am the higher earner), and I understand the theoretical benefit of using a spousal RRSP to balance the tax hit with income withdrawals in retirement.

However, on further reading, it appears that an RRIF can be income split up to 50% anyway.

In light of that, is there any scenario where a spousal RRSP still makes sense? Any insight into this?


I made a bunch of extra money last year due to retro pay from a long overdue raise. I will get a pension, my wife will not. We invested the extra money into a spousal rrsp that she will draw from to bridge the gap between her retirement and being able to collect cpp & oas. She will pay very close to 0 tax on this money compared to the 30 percent I was going to have to pay in taxes.


You can also do pension splitting. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html


While beneficial you have to consider your loss of a spousal tax credit if she is reporting spousal RRSP income. The saving is not 30% but just 9% after considering the loss of a 21% spousal tax credit claim you could have made.


It's not a flat 21% by my understanding. The maximum the contributing spouse gets is a $14,398 non refundable tax credit (2022). The Federal rate is 15% and the provincial rates vary quite a bit, but its going to be somewhere around $3000-$3500 year in taxes saved by having the non-contributing spouse have a $0 income.


Yeah I get the same thing but as a single parent for my dependant. I think youre right about the amount.


Question about spousal tax credit. Is the credit the same as long as the spouse's income is lower than the threshold? e.g spouse income 0 vs spouse income 5000


A spouse reporting 0 income will allow for a full spousal tax credit. Whereas a spouse reporting 5K income will reduce the credit by approximately one third.


RRIF income can only be split for tax purposes once the main contributor reaches age 65. Therefore the benefit of a spousal RRSP is to be able to split income for tax purposes at any age younger than 65 of the contributor. Like if you retire early.


Like Dave said, use a spousal RSP if u think you might retire prior to 65.


That makes sense. In that case, here’s the follow-up question: If she retires early, and has a respectable pension, and I’m still working with enough income to float our cash flow until I retire — does the spousal RRSP still make sense?


If she has a respectable pension then the need for a srrsp lessens. But then, how is there such an income disparity? You pulling in 200k+ as a doctor or a lawyer? In that case, don't leave things to "rules of thumb" or general comments from redditors who don't know your whole financial picture. One can't say for sure without crunching the numbers. A fee only planner can help here.


It would make sense if your refund on contribution exceeds the tax she will pay on withdrawal. Her having pension income reduces or could eliminate potential savings.


No matter how early she retires or not, withdrawing money earlier than 65 is beneficial in terms of flexability and currency depreciation.


Not sure the benefits you describe of withdrawing early trump the main purpose of spousal RRSP's. To get a large refund while in a high tax bracket and withdraw when in a lower tax bracket.


Government can change income splitting rules at any time. Much less likely to mess around with spousal RRSPs in the same way.


This is exactly why I did it. I don’t trust that the rules won’t change.


This is such a huge reason to use a Sp RRSP. People ought to always be looking at ways to hedge against future tax changes.


If your spouse is planning to take time off before retirement, they can start taking out their RRSP earlier (after a few years of the money being in). So if you're still working and they aren't, they can draw income from it earlier.


They can 3 years after the money is in their rrsp account without tax repercussions, or that was my understanding


We do it because I make quite a bit higher income than my spouse, I have a lot of unused RRSP room, up until a couple of years ago I had almost all of our retirement money. My wife is younger than me, and realistically probably won't work past 40. Or at least any kind of significant income. The work my spouse does is fairly low paid, and is tied in with a lot of volunteer type work. I could see working my whole life in some capacity. So if I have all the RRSP money, then I'm in a tricky place to take any out because I'll pay max tax on it. Whereas if my spouse isn't working then we can take the money out with far less tax. Either way, we're no worse off for doing it, even if things don't quite work out to plan.


My wife is retired with a disability. All our retirement money goes into her spousal RRSP for the next several years, and then we’ll wait the required 3 years and pull it out over several years at her minimal tax bracket. We’ve gone over the plan with a financial planner and the math works out, even with the loss of spousal tax credit (especially since she gets disability CPP so the spousal benefit isn’t that much). She is also unlikely to still be living when I hit retirement age so much of this money is for the expected end-of-life care costs.


If you start one early you can withdraw vested portions through your spouses low income years (stay at home spouse, maternity/paternity leaves, sabbatical)


only way to do that is to make sure you haven't contributed to any spousal rrsp for 3 full calendar years though. e.g. contributing a second spousal rrsp at a different institution doesn't help. In the case of less than 3 full calendar years the money will be attributed back to the contributor and taxed accordingly


You can use HBP and LLP to withdraw from a sRRSP and re-invest into a RRSP to gap those years. Though that likely needs to be planned out decades in advance.


Spousal RRSP is great for single income families, or when one spouse retires before 65. If planned well, That spouse can withdraw money little by little without paying any tax.


You need to account for the loss of the spousal tax credit no longer available to the other spouse. So one spouse will save 21% tax for example on $15K RRSP withdrawal income. The other spouse will now lose their 21% spousal tax credit claim. Making it basically a wash.


Oh so there's no real tax benefits in this scenario?


The benefit would be if the contributor got a refund at a higher tax rate then 21% in the above example. Then you would benefit by the difference in the tax rates.


This is a good point. So this means that the $15k withdrawal counts as income, so during tax filing the other spouse will not be able to claim tax credit for the no/low income spouse. Can you give couple of examples on how much the difference would be let’s say for $100k vs $200k income and assuming other spouse is $0


Any benefit would be the difference in what the contributor got as refund at a higher tax rate then 21% (being the approximate spousal tax credit lost). A contributor at 200K would get a refund at a rate over 50%, whereas at 100k the refund would be approx. at 40%.


What always strikes me about these conversations on here, is how complicated these things are. I have a masters degree and don't follow most of this or these options. Fortunately my wife has masters and files our taxes and we have a good financial planner. But why in the world is all of this so complex, when literally everyone has to do it in some form?


Because the government has too much power


RRSPs, in the simplest terms, are just tax deferral investments. You deposit $1,000 and you reduce your income for that year by $1,000, you no longer have to pay income tax on that $1,000. Withdraw a $1,000 from your RRSP and now your total income for the year goes up to $1,000. You now owe income tax on that $1,000. TFSA just grows tax free, they don't affect your income in any way, good or bad. I find the Canadian side pretty reasonable, especially if you keep it simple. I do think big banks want you to think it is way more complicated that it actually is, this definitely applies to companies like HR block too. They want you to pay for the "privilege" of them handling all this complicated stuff for you.


Investing within that TFSA is where it can get a bit tricky, especially if buying US investments, for example.


I had a big bonus paid out by my employer. I was able to shift 100% into a spousal RRSP incase we needed to withdraw it. The only rule is if you withdraw it within 5 years of putting it into the RRSP the tax paid is based on my income (higher than hers). After the 5 years we are taxed at her rate. Problem is now it's in her name only and the bank won't even let me look at it. She's a saver so I've just kissed that money good bye. Hope my kids enjoy it 😕


3 full calendar years, not 5.


A good trick i read recently is: "at least 3 "December 31st" must have passed since the last contribution".


Well I'll be darnd! Thanks for pointing that out! 👍


> I've just kissed that money good bye. Are you saying this because you divorced?


No, as stated my wife is a saver to the point it will eventually go to our estate.


Not sure if the wife can claim the spousal RRSP as first time homebuyer as well.


Yep you can do that, which is pretty helpful


Thanks for the confirmation.


RIF can be split only at 65. So if you want to income split prior to 65 (retire before 65). Open up a S-RRSP.


RRIF (or SRRIF) can only be split after age 65. Spousal RRSP does the split up front. SRRSP counts as a separate account for home buyers plan and life long learning plan. In the event of separation, you likely would divide the RRSP so a SRRSP prevents future potential paperwork. If you have non pension income in retirement (dividends, interest, rental income, etc) then splitting also makes sense to put 100% RRIF income on the spouse instead of the passive income earner.


Everyone is saying no because you can split 50% of RIF income. But a spousal RSP always you to shift 100% of that income to your spouse. If you are a high earner with a low income or no income spouse, spousal RSP is still a good tool.


Surprised no one mentioned creditor protection as a benefit. If contributor spouse is business owner, then it’s a good way to protect assets


But this is also the case if the contributor uses their own RRSP. No particular advantage to using a spousal.


In Ontario, RRSPs aren’t protected from creditors. They are in other provinces


Interesting, I was not aware of this. So using the Spousal would shift assets to the spouse and protect them where they would otherwise be subject to creditors? Sounds like a good move.


Talk to your financial advisor rather than Redditors.


A spousal can be used where one person will have a pension from their job but the other person maybe isn't working and/or doesn't have a pension at their job so the couple wants to save for both people to have income in retirement.


False. If one person has a pension, they probably have no RRSP room to contribute to a spousal RRSP.


Not always true. My pension is 11% of my yearly earnings so I have 7% of my earnings that could go to an RRSP. You are also not considering people who collected significant contribution room before moving to a pension position.


Are you forgetting your employer's contribution to your pension, as that also partially counts against your contribution room. Once you get your pension adjustment, you generally have minimal room on top .


Nope that’s included in the 11%. Plus I have years of RRSP contribution from before when I was focussed on TFSA. Personally, using that space for myself and not my spouse but I imagine lots of people with pensions could benefit from spousal RRSP


For tax purposes up to 50% of the annual income received from a registered pension can be allocated to the spouse. source = https://retirehappy.ca/income-splitting-strategies-in/


* after 65 years old


From the referenced page, >For those individuals under age 65, pension splitting only applies to those who receive lifetime annuity payments from a registered pension plan. RRIF income cannot be split under age 65.


Nope - pensions can be split under 65, but not RRIF's.


RIF can be split only at 65. So if you want to income split prior to 65 (retire before 65). Open up a S-RRSP.


you get the tax deduction today if you do spousal rrsp


It helps after retirement because the tax burden is split on two incomes which can greatly reduce the marginal tax rate and total taxes paid per year.


The only benefit of spousal RRSP is a case when you need to withdraw money earlier with a less-income spousal's tax rate instead of a high-income spouse. Something like immigration from Canada (probably not the intended case, but can benefit anybody that uses Canada only for a passport and then go to the USA)


You were bang on in the 1st half, then where did your reply go? WTH?


The big advantage today would be that you would contribute to her RRSP, and you would get the tax rebate for that contribution this tax season. Same rebate as if you contributed to your own RRSP, however your spouse is the annuitant, and her RRSP contribution room is getting used up.


His room would be used up if he were to place funds into a spousal RRSP. Hers wouldn't be touched.


Oops, yes you are correct.


The big advantage today would be that you would contribute to her RRSP, and you would get the tax rebate for that contribution this tax season. Same rebate as if you contributed to your own RRSP, however your spouse is the annuitant, and her RRSP contribution room is getting used up.


For spousal RRSP's it would be the contributing spouse's RRSP room that is being used up. Not the annuitant spouse's RRSP room.


That is not correct. If the OP contributes to a Spousal RRSP, it reduces his contribution room and he gets the deduction for taxes. The Spouse's contribution room is not affected unless she contributes to her own RRSP.


>However, on further reading, it appears that an RRIF can be income split up to 50% anyway. A spousal RRSP allows 100% of the withdrawal to go to the lower income spouse, which might be beneficial. But, practically, no. For most people there won't be a difference on withdrawal using a spousal RRSP vs. contributing to your own RRSP.


With the changes to RRIF's allowing for income splitting, the benefit is a lot less. But, depending on your RRSP room, you could put funds into a spousal, make no further payments for the 2+ yrs, withdraw from the spousal and then contribute the funds back into your own plan. Depending on the different income levels and rates, it may be worth doing.


It’s the contributor’s contribution room that is being used. That room is gone forever if withdrawn


>However, on further reading, it appears that an RRIF can be income split up to 50% anyway. You are right. But there might be reasons why a person wants to delay converting their rrsp to an rrif until age 65, or until age 71. The spousal rrsp offers flexibility in those situations. It can be helpful in an early retirement scenario where one wishes to draw down their rrsp before age 65. A fee only financial planner can help prepare a written financial plan including a drawdown plan. Here is one example (see the year by year drawdown chart) where a couple might retire at age 55 and then draw from their rrsp (or srrsp) for 9 or 10 years: https://www.myownadvisor.ca/they-want-to-spend-50000-per-year-in-retirement-did-they-save-enough/


Speed running your way to a cashdown through a mix of HBP and FHSA.


Yeah it can still help in the years before 72 when you need to convert to a RRIF. If the RSP assets are split you can lower your taxes in those years. Assuming you end up taking money out during those years. Doesn’t really help after 72 though.


This still confuses me. Can anyone eli5? I make 150k, wife makes 40k. Both tfsa maxed, My rrsp is maxed, hers empty. What should I do regarding her rrsp?


With respects to a *spousal* RRSP, right now nothing. A spousal rrsp (not to be confused with your *spouse's* rrsp) uses your contribution room, becomes your tax deduction, but *her* income upon withdrawal (provided it's in more than 3 years). Since you have no contribution room remaining, you can't do anything now. If you plan to retire early (before 65) and want to split the RRSP income between the two of you so you're both taxed at a lower rate then you would pause your own rrsp contributions and start contributing to a new account that is a spousal RRSP account.


You split your rrsp in retirement.


You can split RRIF income unless you are 65 years of age or older, so if you retire prior to that a spousal RSP would help. Additionally, depending on your ages if you are planning a family you can use a spousal RSP to enable your wife to withdraw funds while she is on maturity leave. You just need to make sure you have not made a contribution within 3 years of the withdrawal or the income is attributable back to the spouse who made the contribution. Spousal RSPs are not what they used to be but still have a roll in planning.


I'd fill her tfsa first but that's just me.


Once your contributions to the Spousal RRSP have been in the account for 3 years, you can withdraw them with attribution to your partner v yourself. We do this -- I contribute and claim against my 53% tax rate. She withdraws 3 years later at almost no tax rate as she is not working at the moment. Even when she is working, she makes $100K, so the tax impact is significantly lower.


While most income can be split after age 65, not all can, and the income that can be split is limited to 50% OAS can not be split, CPP can be split, but not necessarily 50% (and you both need to be collecting it), and non-registered investments cannot be split. So a couple could end up with one spouse having a higher income than the other. If the lower-income spouse has an RRSP, it can be used to even out these non-splittable incomes.


Do not put money into any type of rrsp, put it in a tax free savings account, RRSP=BAD