Income splitting is one of the most useful strategies in retirement. And here’s a retirement tip that is often missed – taking full advantage of the spousal RRSP account. The spousal RRSP account allows a higher income spouse to transfer funds into the hands of a lower income spouse. Those funds will grow tax free; and when it comes time to create retirement income the amounts will be taxed in the hands of the lower income spouse. An optimized retirement cash flow plan will spread the tax burden more evenly between spouses. We’re looking at retirement tips on the Sunday Reads.
Income splitting and sharing should be top of mind for Canadians preparing for retirement. Retirement planning starts decades before the retirement start date. While you can split RRIF income at age 65, you cannot split any RRIF income before age 65. You cannot split any income from an RRSP account, it has to be converted to a RRIF. A spousal RRSP account will allow you to ‘split ‘income at any age.
After age 65, the pension income splitting rules allow you to split up to 50% of your RRIF income with your spouse. With spousal RRSPs, you determine the amount of income to split by deciding how much to contribute to the spousal RRSP. You’re not limited to 50%.
Your RRSP space becomes their money
The RRSP space is created by the higher income spouse. When they make a contribution into the spousal account the lower income spouse is the annuitant – they now own those funds. The spousal account of course, will be opened in their name, in their account.
We also need to pay attention to the attribution rule. The spousal funds have to be vested for two full calendar years to qualify as income for that spousal account holder.
A tax saving example
Courtesy of Sun Life, here’s the tax saving concept …
By creating more equal buckets of taxable withdrawals you might also be able to avoid the OAS claw back. That claw back (officially called the recovery tax) begins at an income level of $90,977 and OAS is completely lost at $151,668, and for those aged 75 and over, it’s $157,490.
Remember the Canada Pension Plan (CPP) will be there for you. It’s one of the three pillars of retirement income.
How do you create the most durable income? How do you get your money out in the most tax-efficient manner? That’s one of the main goals of Retirement Club for Canadians.
Check out the Retirement Club overview
One of the main strategies is the RRSP/RRIF meltdown that we discussed on Twitter / X.
You’ll also learn some of the subtleties or ‘tricks’ for each account type.
More on Spousal and income sharing
You will likely have the ability to fund a spousal RRSP if you have a workplace group RRSP plan.
We can also share the CPP (Canada pension plan) under certain conditions.
You can split your workplace pension, and usually before age 65. Confirm with your pension administrator, of course.
Here’s a good post from Manulife that offers a couple of other tax tricks.
Another $2000 RRIF gift
At age 65 RRIF accounts are eligible for the first $2000 pension income tax credit. It’s essentially another $2000 of tax free income per spouse. Given that, even if you don’t need the funds, convert enough into a RRIF to pay out that $2000 each year from age 65 to 71. That’s another $4,000 in tax free income for a couple.
Please note, if one spouse has no RRIF available the spouse ‘with RRIF’ can take out $4,000 with a $2000 allocation to the spouse at tax time.
RRSPs and RRIFs and your estate
Be sure to nominate your spouse as the successor holder or successor annuitant on your beneficiary form. That will allow the full RRSP or RRIF amount to be transferred to your spouse in tax free fashion. It will bypass the estate and probate. The funds will be moved to their RRSP or RRIF account.
The wealth building stage
The accumulation / wealth building stage is simple enough at the core. You want to make the most amount of money while investing within your risk tolerance level. But there are a few things you want to pay attention to such as the the spousal RRSP and income splitting.
Here’s a post on the personal finance basics – Oh look I just found $888,000 in your coffee. Yes the little purchases can add up, especially when you consider the wealth you can create by investing the found excess weekly cash flow.
The RRSP is your best friend. It mostly wins as the top target for your investment funds. You’ll find an RRSP vs TFSA calculator in …
Next week we’ll look at how to use your taxable accounts. Keep in mind the attribution rule applies. A higher income earning spouse can’t gift money to a spouse to be used in a taxable investment account. If you hold a joint taxable account, any income will be taxed in the hands of the contributor – the spouse who earned the income.
Feel free to reach out with any questions. You can use the Contact Dale form on this page, or fire away in the comment section. Are you using spousal accounts? Do you now know you need to take advantage of the spousal RRSP?
And join us at Retirement Club.
The Sunday Reads
At Findependence Hub, what Rob Carrick and other personal finance writers have learned about retirement. As you’ll see it appears to be near impossible for personal finance writers to walk away and retire. I second that, I get busier every year in my ‘semi retirement’. Rob recently retired, but we’ll likely be seeing him around.
At StockTrades Dan looks at Canadian gold stocks and natural gas stocks.
We hold Tourmaline TOU-T. I’ve long been a fan of the big 4 Canadian oil and gas names that has beat the crap out of the energy indices in Canada and the U.S.
CNQ-T / IMO-T / SU-T / TOU-T
I continue to chip away at those holdings. The foursome is in most of our accounts.
At Tawcan Bob interviews Mark McGrath about his recent semi retirement. Mark is a long time financial planner, most recently with PWL Capital. I certainly applaud Mark’s decision to chose family and health over work. I had a few work stoppages in my career and then moved mostly to freelancing in my 40s to allow for better health, freedom and family time .
You’ll find it interesting that Mark is in the 100% equities camp for retirement funding. There’s certainly a lot of math to support that, but most (almost all) retirees will not have the risk tolerance to pull that off. Be sure to check out …
Creating retirement income from your portfolio.
Retirees with more conservative portfolios spend more than those with aggressive portfolios.
That a good read, and congrats to Mark. Hopefully I can have him back on the blog soon.
Be sure to follow Fritz’s cruise to the Arctic …
Portfolio nesting
Dividend Hawk does some portfolio nesting each week. We shared in some Texas Instruments TXN dividends this past week. Hawk also offered up the Metro quarterly earnings summary …
Metro Inc. (TSE:MRU) Reports 2025 Third Quarter Results; MRU reported Q3 adjusted earnings of C$1.52 per share for the quarter ended June 30, higher than the same quarter last year, when the company reported EPS of C$1.35. The mean expectation of eight analysts for the quarter was for earnings of C$1.53 per share. Revenue rose 3.3% to C$6.87 billion from a year ago, analysts expected C$6.92 billion.
We hold that indirectly by way of the wonderful iShares Canadian consumer staples XST-T. I’m a big fan of defensive equities for retirement.
At Banker on Wheels a look at market meltdown risk. And BoW starts with this wonderful quote …
Never get so busy making a living that you forget to make a life.
Dolly Parton
Creating the life plan is perhaps even more important that the money plan. That said, do both 😉
Also in the mix, Morningstar on how to spot dividend traps.
This week on Twitter I suggested that we have no idea of what our risk tolerance is …
I trimmed more shares this past week to secure more retirement income. I have more limit sales targets set.
And sometimes the dividends do let you know when there’s value to be had …
Join Cut The Crap Investing
You can follow this blog, it’s free. Newsletters, plus other free content and ‘ideas’ will be delivered to your email inbox. Enter your email in the subscribe area, or ‘join us today’ on the home page.
ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation/ Retirement Club
Thanks Partners
Earn a break on fees by way of many of these partnership links.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop. You can have it all.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account rates are at 1.75%, other savings rates up to 3.0%. You’ll find some higher rates on GICs up to 3.60%. They also offer U.S. dollar accounts at 3.0%. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For June we received $43.56 in cash from everyday spending. You can select 3 categories for 2.0% cash back. The rest pays at 0.50%.
That cash went into my TFSA account to help buy some CBIL-T and VDY-T.
Join us at Retirement Club
It is a series of monthly Zoom Presentations, newsletters, plus a secure and private online space where we learn, share ideas and connect with members. Here’s the Retirement Club overview page
Make sure you’re doing retirement right. It’s also suitable for those who are approaching retirement. Use Contact Dale if you’d like more info, or to sign up for the next group.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
You note using Successor beneficiary designation for RRSP, for a spouse I assume. But recent excercise I went through with RBC-DI they said yiu can’t do Successor for real, only for tfsa and some other annuitant registered accounts like RIF for example. They only allow Beneficiary even for spouse for RRSP. What am I missing??
Hi Dan, for RBC wealth here the successor annuitant form …
https://ca.rbcwealthmanagement.com/documents/651596/651612/rsp.lira.rif.lif+beneficiary.pdf/95f0ca54-a72e-424f-a19d-566b247706c3
You can do the same for RRSP, LIF, etc.
Dale
Thanks Dale.
The form that RBC-DI uses is similar but different from the one you attached from RBC-DS. Does that make any sense? I’ll have to look into it further.