A spousal RRSP is a regular RRSP with one important difference, says Mike Henry, senior vice-president of retail products, Scotiabank: The person making the contribution is doing so in their spouse’s name.

“This lets couples divide up their retirement income as a way of minimizing their overall tax liability in retirement. It’s really useful in that you can help balance up the income load and try and keep each spouse in a lower overall income tax bracket in retirement.”

A spousal RRSP is an income splitting strategy with the objective of reducing the cumulative family tax bill, according to Anthony Williams, vice-president of academic affairs, Canadian Institute of Financial Planning. 

Through their working life, the person with the higher income can shift income to the person in the lower tax bracket, says Williams. When you both retire, rather than have a disproportionate pool of RRSP income, you have equal amounts, says Williams. If you need $50,000 of household income, you would pull $25,000 from each plan.

“From a tax perspective, that’s much better than taking the entire amount from the one.”

Here’s what you need to know about spousal RRSPs:

• A person can contribute his or her entire RRSP allowance into a personal RRSP, put it all in a spousal RRSP, or split up the contribution. 
• Once money is in a spousal RRSP, it becomes that person’s money – even though the other person makes contribution.
• The contributor gets the tax deduction.
• Any withdrawal is taxed. The contributor will get taxed if the money is pulled out during the attribution period, which is three calendar years from the contribution. Otherwise, the owner will get taxed when the money comes out.

At the same time, spousal RRSPs are just one way of doing spousal splitting and, really, you should look at how they fit into your whole retirement savings plan, says Williams.