Charlotte Laflamme and Maxime Langevin have been married for 9 years, but in a relationship for 21 years. When Maxime earned a higher salary than Charlotte, he contributed to the latter’s RRSP because it was more advantageous for him to do so, but also for the sake of fairness. “I did it for a year. After that, it became more advantageous to put it all on for me than to put it on for Charlotte, ”he explains. The couple, who admit that the term “spouse’s RRSP” is unfamiliar to them, has yet used it!
The benefits of a spousal RRSP
A spousal RRSP can be used by married or common-law couples. It allows one of the two partners to contribute to the other’s plan using their own contribution rights in order to benefit from the corresponding tax deduction. The contributor can invest up to the limit of his contribution without affecting the ceiling of his partner. “I contribute for my spouse, but it’s really my RRSP rights that are used, so it’s me who will have the deduction. But the RRSP is in the name of the spouse,” explains Vincent Sigouin-Marquis, tax specialist and financial planner at Desjardins Wealth Management.
It’s when withdrawing RRSPs that it becomes interesting. “If the lady contributes to her spouse’s RRSP and he, when he retires, only pays 10% tax instead of the 30% that the lady would pay, the government’s gift has just been increased. It can quickly become very interesting,” demonstrates Mr. Sigouin-Marquis.
Rendered at the time of withdrawing the sums, if there is a significant difference between the incomes of the two spouses, this is where we see the main advantage of the spousal RRSP.
Vincent Sigouin-Marquis, tax specialist and financial planner at Desjardins Wealth Management
Another advantage of the spousal RRSP is to maximize the Home Buyers’ Plan (HBP). “If I already have all the money required, but my spouse doesn’t, I just have to contribute to her RRSP,” explains Roger Massicotte, independent financial planner. This allows you to double the amount for the purchase of a first property.
The spousal RRSP can also be a good financial planning tool for a time when you know that the spouse’s income will be low, such as for maternity leave, a return to school or a sabbatical year. “If we contribute a sum today and that sum stays there for three years – a rule known as the “three December 31sts” – our spouse could, if there were no other contributions in the meantime, withdraw this sum. It is he who will be taxed, it is he who will add this sum to his income, and therefore it can bring a good boost in a year when there is less income, ”explains Mr. Sigouin -Marquis.
Finally, knowing that you have the right to contribute to an RRSP until age 71, the spousal RRSP can allow a person who has a younger spouse to continue contributing. “If I’m 72 and I still have $35,000 in RRSP contribution room that hasn’t been used, I can put it in my spouse’s RRSP,” explains Massicotte.
For experienced couples only
For married couples, RRSPs enter into the division of the family patrimony. In case of divorce, they are therefore separated half and half. “Whether for example I put $50,000 in RRSPs in my name or in the name of my spouse, if there is a breakup and we are married, the division of the patrimony will ensure that each of the two spouses will leave with $25,000, so half of the amount that was contributed,” says the tax specialist and financial planner at Desjardins Wealth Management.
For de facto spouses, there is no such notion of sharing family patrimony at the time of separation. Couples who decide to take out a spousal RRSP would do better to sign a cohabitation agreement to avoid unpleasant surprises. “If we put $50,000 in our spouse’s RRSP and there is a separation, the spouse keeps the dollars and we get nothing back. It can be expensive as misunderstanding, ”advises Mr. Sigouin-Marquis.