Planning for retirement with Spousal RRSPs

A spousal RRSP is a tax-efficient way for you and your partner to save for retirement.

Planning for retirement as a couple can be a balancing act as you attempt to blend individual goals and needs into a unified financial vision. It starts with a discussion of expectations — namely, what kind of lifestyle do you hope to enjoy in retirement and how much income you’ll need to attain it. For example you may want to purchase a vacation home or start a new business in retirement. A spousal RRSP can help you and your partner even out each of your retirement savings. This way, when you retire, you’ll both be able to withdraw a similar amount of money from your RRSPs based on your needs.

What is a spousal RRSP?

A spousal RRSP is an investment account for your spouse’s or common-law partner’s retirement. If you earn more annual income than your spouse, you can contribute some or all of your individual RRSP contribution into a spousal RRSP account registered under your spouse’s name.

What are the benefits of having a spousal RRSP?

A spousal RRSP allows you to:

Save on taxes: A spousal RRSP allows you to “split” your retirement income and find tax efficiencies as a couple if you fall under a lower tax bracket when you withdraw from the account.
Invest for retirement: You can contribute money each year into a spousal RRSP, tax is deferred on that money until it is withdrawn.

A spousal RRSP with a segregated fund can help you provide protection to your loved ones. You can hold segregated funds in an RRSP account to help you protect, grow and preserve your money. It can help you reach your retirement goals and guarantee that your beneficiaries receive a certain percentage of your investments when you pass away.

Split your contribution with a spousal RRSP

If you and your spouse earn different levels of income, a spousal RRSP can help you “split income” to even out your annual income tax payments and save on taxes when you eventually withdraw from the account. Take this example:

Deborah earns $100,000 annually, and Jack earns $50,000.
As spouses, Deborah and Jack are each able to contribute up to 18% (or the CRA established limit for that year) of pre-tax earnings from the previous year into their individual RRSPs.
This would mean Deborah can contribute $18,000, and Jack could contribute $9,000.
If they open a spousal RRSP where Deborah is the contributor (because she earns more) and Jack is the recipient (because he earns less), Deborah can split her $18,000 contribution and contribute $4,500 to her own RRSP and $4,500 to Jack’s spousal RRSP.
Jack may still contribute $9,000 to his own RRSP and they will both have $13,500.
Deborah will get a tax deduction for her contributions. Jack will be able to use the funds from the spousal RRSP in retirement and he will be attributed the income (for tax purposes) for withdrawals (in retirement).

A spousal RRSP allows Deborah and Jack to equalize their retirement savings between them so that they have a pool of savings and pay less in taxes upon withdrawal each year of retirement.

This “split income” strategy can help you build a nest egg that provides each of you with a source of income in retirement and a way to manage your taxes efficiently.

What happens to a spousal RRSP if we break up?

Should you and your partner end your marriage or common-law partnership, your spousal RRSPs will be treated the same as your other assets. This means that your RRSPs will be split and can be transferred tax-free.

What happens to a spousal RRSP if one partner dies?

If one RRSP contributor dies, it’s possible to roll over the RRSP tax-free to the surviving spouse or common law partner. This means that the income from the spousal RRSP is transferred to the living spouse or partner and is reported on the beneficiary’s tax return for the year. Spousal RRSPs can be a potentially useful estate-planning tool to provide a tax-free inheritance upon your death.

How do I set up a spousal RRSP?

You can set up an RRSP account with a Segregated Fund and start saving by setting up automatic contributions. Add insurance as a part of you and your spouse’s retirement planning today.

RBC Retirement Investment Solutions

Whether you’re building up your nest egg or ready to turn your hard-earned savings into retirement income, our solutions can help you make the most of your money. Have an RBC Insurance Advisor call you to learn more.

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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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