Is a spousal RRSP still useful?
Contributions to a spousal Registered Retirement Savings Plan (RRSP) are tax-deductible to the higher-income spouse, and withdrawals are taxable to the lower-income spouse. But is this tax advantage still worthwhile in light of pension income-splitting provisions?
Today’s pension income-splitting rules enable the higher-income spouse to allocate up to 50% of their eligible pension income, which includes Registered Retirement Income Fund (RRIF) payments, to the lower-income spouse. Although this makes spousal RRSPs less significant, there are situations when a spousal RRSP still offers unique benefits.
Retiring before age 65.
If you’re under age 65, pension income-splitting is primarily limited to payments from a registered company pension plan. You must be 65 or older to split income from a RRIF. But, if you retire before 65, you can supplement retirement income with spousal RRSP or spousal RRIF withdrawals taxed at the lower-income spouse’s rate.
Contributing to an RRSP past age 71.
If you have a younger spouse, you can continue to contribute to a spousal RRSP after you turn 71. This way, if you still have earned income, you can benefit from the RRSP tax deduction.
Splitting more than 50% of pension income.
Pension income-splitting rules allow you to split up to 50% of eligible pension income. But, you can split more than 50% of your pension income by making withdrawals from a spousal RRIF, which can help equalize spouses’ taxable income.
