If you anticipate that your spouse’s income will be considerably lower than your own during retirement, a great way to save money on your tax bill is to take advantage of a Spousal RRSP. It’s a simple and strategic way to split your income.
How does a Spousal RRSP work?
The higher income-earning spouse contributes to the Spousal RRSP and gets to claim the tax deduction. The money in the plan then accumulates free of tax until it is withdrawn by the other spouse (the lower income earner), which will result in tax savings.
What you should know about Spousal RRSPs:
If you are the plan owner and your spouse is contributing into your Spousal RRSP, if you withdraw money from the plan, any money contributed in the last 2 calendar years as well as the current year will impact your spouse’s taxes. In other words, your spouse’s taxes will end up being impacted. So, it would not be advisable to start up an RRSP unless you are certain you won’t have to withdraw the funds in the short term. (Before investing in an RRSP, it’s important to have an emergency savings account set up so that in the event of an unexpected expense, you wouldn’t be depending on RRSP money.)