For some couples, this strategy can save significant taxation
during retirement.
Use of a spousal rrsp is a method of in-come sharing at
retirement. The idea is to build two pools of savings, one for
each spouse, that will produce similar income streams at
retirement. The taxes paid on the two income streams will likely
be less than those paid if the income were to be taxed in the
hands of one spouse, who would then be taxed in a higher tax
bracket. The more income that can be generated by the lower
taxed spouse, the better the savings.
Income sharing is particularly beneficial when one spouse
will have substantial income from pensions and other sources,
and the other spouse will have little or no pension other than
rrsps.
If you and your spouse have significantly different incomes
and/or pension plans, you may want to consider contributing some
or all of your yearly rrsp contribution to a spousal plan. You
will still receive the rrsp tax deduction for your contribution.
Your total rrsp contributions (personal and spousal) are subject
to your yearly rrsp limit, the same limit that would apply to
your personal rrsp.
Since a spousal rrsp belongs to your spouse, the money you
have invested in it also belongs to your spouse, and you have no
legal say in the future investment or disposition of that money.
Although your spousal plus personal contribution cannot
exceed your annual rrsp limit, the amount you contribute in a
spousal plan does not affect how much your spouse can contribute
to an rrsp. He/she can still contribute up to their yearly limit
as well.
Most commonly asked questions are: Is it risky to invest in a
spousal rrsp? What if we divorce, or if my spouse dies?
Use of a spousal rrsp is not really a risk. In most
situations, if you divorce, all rrsps (spousal and personal) and
pensions will be split between spouses.
In the event of death of one spouse, rrsps can be transferred
tax-free to the remaining spouse (including common-law),
provi-ded that the spouse was named bene-ficiary of the rrsp
plan.
Depending on your situation, a spousal rrsp can be an
effective tax planning strategy. Talk to your financial advisor
to plan your finances better.
