February 1996

Why Almost Every Couple
Should Have a Spousal RRSP

© Talbot Stevens

The real question with RRSPs isn't whether or not to do them. Anyone who doesn't like paying taxes, and wants to build a secure retirement must maximize their RRSP. The real question is whose name it should be in.

Spousal RRSPs are an underutilized RRSP option that provide one of the few remaining methods for income splitting. If you're married, or even living common law now, you can contribute to an RRSP and get a tax refund based on your current tax rate, and have the plan owned by your spouse. This means that — after a three year holding period — it will be taxed in their name when they cash it in.

The objective is to try to balance incomes when the RRSP is going to be withdrawn, usually at retirement, so that the couple as a whole pays less tax. Two $30,000 incomes, for example, are taxed much less than one income of $60,000.

This is a big benefit, especially for single income families, or where one spouse has little or no retirement income.

Consider a simple example to clarify. Let's say that Karen recently graduated as a doctor, and earns $150,000 a year. Her husband, Ted earns $50,000 a year as a teacher. Who, if either, should contribute to a spousal RRSP?

At my seminars, most people respond that the doctor should because she is in the highest tax bracket. But remember the purpose of a spousal RRSP again. Who has the higher income at retirement, when we assume that the funds will be withdrawn? The teacher has a good pension, while the doctor currently has no retirement income.

The doctor, and more generally anyone that is self-employed, must take maximum advantage of RRSPs to take care of their own retirement, because they don't have anything else to rely on. The teacher, with the lower current income, but higher retirement income, should contribute to a spousal RRSP to help build up his wife's retirement income.

When should he stop? When her RRSP is large enough to produce the same retirement income as his.

When you make your RRSP contribution this year, put it into the right person's name. If your spouse will have a lower income at retirement, then it should be in their name, and hence be a spousal RRSP.

If you're not clear on this, see your advisor to ensure that you're properly using spousal RRSPs to split income and minimize taxes at retirement. It won't make any difference in terms of your tax refund now, but it will make a big difference at retirement.

Since very few couples will have perfectly balanced retirement incomes, almost every couple should have a spousal RRSP.

For more information, visit