Spousal RRSPs can be particularly beneficial for couples (married or common-law) who have significantly different incomes because the account is owned by the lower-earning spouse, but contributions are made by the higher-earning spouse.

Benefits:

• Contribution room is determined by the higher-earning spouse’s contribution limit, so you can contribute more to the account despite the account owner having less contribution room.
• The higher-income spouse gets the tax deduction now and withdrawals are taxed at the account owner’s taxation rate, so if the owner of the account has a lower income, you can see significant tax savings after retirement. Certain restrictions apply for withdrawal which we’ll discuss below.
• If one spouse is older than the other, spousal RRSPs can be handy. The older spouse loses the ability to contribute to their personal RRSP at age 71, but they can still contribute to the spousal RRSP until their spouse reaches 71 and reduce their taxable income with this contribution.
• Likewise, if you die, your estate can contribute money to the spousal RRSP account as tax-free inheritance.
• Spousal RRSPs can also be helpful if one spouse decides to leave work to raise children or go back to school. The working spouse can continue to contribute to the spousal RRSP so retirement savings for the off-work spouse do not stop.

Drawbacks:

• Funds cannot be withdrawn from the spousal RRSP for two full years from the contribution date or they will be attributed back to the contributor and taxed at that rate.
• Your RRSP contribution limit doesn’t increase if you have both a personal RRSP and spousal RRSP. Your contribution limit must be split between the two accounts.

We think the benefits outweigh the drawbacks, but any account recommendations would be made on an individual basis, considering your unique needs and circumstances. Talk to your Assante advisor today to see if a spousal RRSP is right for you and your partner.