How it works ?
A spousal RRSP is simply a registered retirement savings plan in which a spouse makes contributions, explains Raffaele Nardi, financial planner at Gestion de Patrimoine R. Nardi and mutual fund representative at Investia. The advantage is the same as a traditional RRSP, that is to say that contributions reduce taxable income. Except that the spousal RRSP is more advantageous since it allows the person with the highest income to contribute to the RRSP of the person with the lowest income. “This makes it possible to balance the RRSPs of both spouses so that future withdrawals are not all made by one of the two spouses,” says Raffaele Nardi. He would then end up paying a lot more tax. »
The fine print
In general, the rules surrounding the spousal RRSP are very similar to those governing the traditional RRSP. The deadline for contributing, for example, is this year the 1er March 2023 in both cases. With regard to the age limit, however, a subtlety should be noted: you can contribute to your spouse’s RRSP until the latter has reached the age of 71, while for your own RRSP , the age limit – still 71 – is yours. “As for contributions, those you make on behalf of your spouse do not reduce their ceiling,” explains Raffaele Nardi. Rather, they reduce yours. »
Who can benefit more
The spousal RRSP is advantageous, but not as much for everyone. Many factors come into play, such as age and income. But in general, the spousal RRSP is advantageous for couples in which one spouse earns significantly more than the other, or when there is a large gap between the amounts accumulated in RRSPs for each of the spouses. “Thus, the spouse with a higher income will benefit from contributing to the RRSP of his spouse to have himself a higher tax deduction”, notes Raffaele Nardi.
The three-year rule
PHOTO OLIVIER PONTBRIAND, LA PRESSE ARCHIVES
Boyan Ivanov, Investment Specialist and Financial Planner for Scotiabank Wealth Management
Reaping the full benefits of spousal RRSPs requires patience – in small doses. Because if your spouse withdraws the amounts you contributed to their RRSP within three years of the deposit, the amount of the withdrawal will be added to your taxable income, explains Boyan Ivanov, investment specialist and financial planner for Scotiabank Global Wealth Management. . “For the withdrawal to be taxed on your spouse’s shoulders, which is really the advantage of the spousal RRSP, you have to pass December 31 three times. »
De facto spouses, beware
As its name suggests, the spousal RRSP is not only offered to married couples: common-law couples can also benefit from it. Be careful, however, certain precautions are necessary, notes Boyan Ivanov. “If you are de facto spouses, the money in the spouses’ RRSP is not in the common pot of a family patrimony,” he says. Your contributions to the spousal RRSP will therefore allow you, in the event of a separation, to keep the tax savings, but not the amount contributed. ” The solution ? “If you want to take advantage of the spousal RRSP, I strongly recommend that you have a cohabitation contract drawn up! »