Spousal RRSPs prevent one giant tax bill in retirement

If one spouse earns $90k and the other earns $30k, you're building toward a retirement tax problem. The high earner accumulates a massive RRSP that will get taxed entirely in their name. The low earner has a small RRSP that barely moves the needle. When both accounts convert to RRIFs, one person pays tax on most of the income while the other wastes their lower tax brackets.

Spousal RRSP contributions fix this before it becomes a problem.

How spousal contributions work

You contribute to an RRSP in your spouse's name using your own contribution room. You get the tax deduction now. They own the money and will pay tax on it when withdrawn. The 2025 RRSP limit is $32,490 - you can put all of it into their account if you want.

Say you earn $85k and your spouse earns $35k. You contribute $15k to a spousal RRSP in their name. You deduct that $15k against your $85k income and pay less tax this year. In 30 years, when they withdraw that money as retirement income, it gets taxed at their rate - not yours.

This isn't income splitting. It's income splitting prevention.

Why this matters at retirement

Without spousal contributions, retirement income gets lopsided fast. The $90k earner might have a $800k RRSP generating $40k annually in retirement income. The $30k earner might have a $200k RRSP generating $10k annually. Total household income: $50k. But it's taxed as $40k for one person and $10k for the other.

In Ontario, $40k gets taxed at roughly 20% marginal rate. $10k gets taxed at 5.05%. The first person pays about $6,400 in tax. The second pays about $450. Total: $6,850.

With spousal contributions balancing those accounts over the years, retirement income could be $25k each. Both people pay tax at roughly 15% marginal rate. Total tax bill: about $5,200. That's $1,650 less tax every year in retirement.

The three-year rule catches early withdrawals

Money contributed to a spousal RRSP can't be withdrawn by your spouse for three calendar years without the tax hitting your return instead of theirs. Contribute in 2025, and they can't touch it until 2028. If they withdraw in 2026 or 2027, you pay the tax despite not getting the money.

This rule exists to prevent people from using spousal RRSPs as an immediate income-splitting trick. It doesn't apply after age 65 or when the account converts to a RRIF.

When spousal contributions make sense

The bigger the income gap, the bigger the benefit. If you both earn similar amounts, your RRSPs are probably already balanced. If one person earns twice as much as the other, spousal contributions start looking useful.

TaxSplit.ca will show you the exact refund for your contribution and what your retirement tax bill might look like with different RRSP balances.

Also matters if the lower earner has years with no earned income - parental leave, career breaks, extended unemployment. Their RRSP contribution room stays low while yours keeps growing. Spousal contributions let you fill both accounts even when only one person has income.

TFSA vs spousal RRSP

If you're choosing between maxing your TFSA and making spousal RRSP contributions, the TFSA usually wins first. No withdrawal restrictions, no forced conversion, no tax on the way out. But once TFSAs are full, spousal RRSP contributions beat putting everything into your own account.

The higher your current income relative to expected retirement income, the more sense spousal contributions make. At $100k now expecting $50k combined in retirement, the tax arbitrage works in your favor twice - your high rate now, their low rate later.