Spousal RRSP: Income Splitting for Couples

If one spouse earns significantly more than the other, a spousal RRSP lets you balance retirement income and reduce your household's total tax bill. Here's how it works.

The Basic Concept

A spousal RRSP is an RRSP in your spouse's name that you contribute to. You get the tax deduction; they own the account and get the money in retirement.

Why would you do this? Because Canada's tax system is progressive—the more you earn, the higher percentage you pay. If one spouse has $80,000 in RRIF income while the other has $20,000, you pay more total tax than if you each had $50,000.

How It Works

1. Higher earner contributes to spouse's RRSP using their own RRSP room
2. Higher earner claims the deduction on their tax return
3. Money grows in the lower-earning spouse's name
4. In retirement, withdrawals are taxed at the lower-earning spouse's rate

The contribution room comes from the contributor's limit, not the spouse's. If you have $30,000 of RRSP room, you can put some in your own RRSP and some in a spousal RRSP—but the total can't exceed your limit.

The Three-Year Attribution Rule

CRA isn't naive about income splitting schemes. There's an important rule to prevent abuse:

This prevents the obvious dodge: contribute in December, claim the deduction, have spouse withdraw in January at their lower rate.

The three-year clock resets with each contribution. If you contribute in 2024, don't contribute in 2025-2026, your spouse can withdraw in 2027 without attribution.

When Spousal RRSPs Make Sense

• Significant income gap: One spouse earns much more than the other
• Lower earner has little RRSP room: Career breaks, part"../../../coming-soon/blog/ca"-time work, or lower lifetime earnings
• Planning for early retirement: Lower-earning spouse will access funds before 65 (pension income splitting only works at 65+)
• One spouse already has a large RRSP: Balancing retirement accounts between spouses

When to Skip the Spousal RRSP

• Similar incomes: If you'll have roughly equal retirement income anyway, there's no tax benefit
• Both maxing out RRSPs: If both spouses have plenty of room and use it, spousal contributions don't add extra benefit
• Over 65: At 65+, you can split pension income (including RRIF) anyway via the pension income splitting rules

Spousal RRSP vs Pension Income Splitting

Pension income splitting lets you allocate up to 50% of eligible pension income to your spouse on your tax returns. But for RRIF income, it only works once you're 65+.

If you plan to retire before 65, spousal RRSPs give you income-splitting benefits during those early retirement years that pension income splitting can't.

The Strategy

For couples with income disparity:

1. Higher earner contributes to spousal RRSP during working years
2. Stop spousal contributions 3 years before spouse needs to withdraw
3. Lower-earning spouse draws from spousal RRSP in early retirement (pre-65)
4. After 65, use pension income splitting for any remaining accounts

How Talk Through Wealth Helps

Model the household tax impact of spousal RRSP strategies:

• Compare your-RRSP vs spousal-RRSP contributions
• Project retirement income for both spouses
• Calculate household tax savings from income equalization
• Track the three-year attribution window
• Coordinate with pension income splitting at 65