Yup. It sounds crazy, but it can work. A low-taxed early-retiree spouse can contribute to a higher-taxed still-employed spouse’s RRSP to create a benefit. And if need be, the early retiree can remove funds from their RRSP or RRIF to make that contribution. We might call that a tax arbitrage. You might be in a situation when the early retiree is taxed at 11% for money on the way out of RRSP land. The money moving into the working spouse’s RRSP might create a tax break of 35% or more as an example. To fund that RRSP you might also consider using funds from a TFSA or Taxable account. The key is to look at tax rates, and to know that the RRSP account is still, often the most superior form of investment due to the employment income tax relief.
It’s an investment basic. Money that you contribute to an RRSP reduces the taxes owed for that tax year of said contribution. You make $100,000, contribute $20,000 to an RRSP and only pay income tax on $80,000. The money inside your RRSP grows tax-free until you take it out for retirement funding. It’s a powerful account especially if you invest any tax return. You might use the tax return money to top up the RRSP contribution in the following year. The RRSP usually wins in the accumulation stage.
How to use your TFSA account
If you use the RRSP-to-RRSP arbitrage, you effectively pay 11% tax on the withdrawal to get a 35% deduction , netting a 24% tax win. However, funding the exact same contribution using a TFSA costs you nothing in taxes , making the 35% deduction a pure, unmitigated gain for the household. You might have capital losses in a taxable account, perhaps making that account the most advantageous. Take care of those capital gains as the opportunity presents itself. We should manage and take advantage of capital losses each year.
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The key is, don’t stop looking for ways to create tax efficiency, even if one of you is retired. It’s hard to have too much in your RRSP / RRIF accounts, especially if we are in a spousal situation. Income splitting in retirement is a powerful force and most will experience a sizeable decrease in retirement tax rates.
Spousal or personal RRSP?
Ironically, that RRSP contribution to your working spouse can also end up back in your hands (ownership) by way of a Spousal RRSP.
Your considerations will be based on income splitting ability when you are both retired. RRSPs retirement income can only be split at age 65 and beyond, and also, the funds must be moved to a RRIF account. You must also pay attention to the attribution rule. Spousal RRSP funds must be vested for 3 years to be eligible to create retirement income.
But on that front, Aaron Hector of Tier Wealth has reminded us in the past that you can ignore that RRSP Spousal vesting rule if the funds are used for a RRIF minimum withdrawal.
Full tax credits in the year you turn 65
You quality for the full age amount for the full year in the year that you turn 65. That is, it is not pro-rated. The same goes for the first $2000 pensional earnings credit. You receive that credit in the year that you turn 65.
I turn 65 in late 2027 (crazy, I can’t beleive it). That said, I can apply the full age credit and full $2000 pensionable earnings credits in 2027. That’s another $11,000 or more of potential tax-free income. Check with your provincial credits and tax treatment to understand the full benefit. Add those retirement credits to the Basic Personal Amount. That’s the amount we earn tax free before income taxes start to kick in. For 2026 the BPA is $16,452.
Stacking the Federal Non-Refundable Credits (2026)
If you are 65 or older and earning a net income of $181,440 or less, you can stack three main federal credits to build your tax-free foundation.
- Basic Personal Amount (BPA): $16,452 (The base amount every Canadian earns tax-free).
- Age Amount: $9,028 (Available if you are age 65 or older by December 31).
- Pension Income Amount: $2,000 (Applies to the first $2,000 of eligible pension or RRIF income).
Ka-ching: $27,480
That’s a very good low tax or no-tax base for each retiree. In a spousal situation we might be doubling up and taking that amount to the $54,000 area. And then it’s possible that you might have that base covered by CPP and OAS, especially if you delay CPP payments to 65 and beyond. You might delay OAS as well to age 70 for the 36% increase. CPP will increase 42% from age 65 to 70.
Create an optimized retirement cash flow plan
When you run a retirement calculator such as MayRetire, you’ll discover when to take CPP and OAS, and how to incorporate any employer pensions and then when (and how much) to draw from your investment accounts such as RRSP’s / RRIFs/ LIFs/ TFSAs and Taxable accounts (and other amounts). Retirement funding is a bit of a dance, the retirement calculator is the choreographer.
The calculator will help you manage risk, let you know how much you can spend in retirement and will create a tax-efficient cash flow plan. Creating a successful retirement cash flow plan might be easier that you think. Have a read of …
The simple strategies that set you up for retirement success.
Just a few key moves can do most of the heavy lifting. Of course we can continue to improve our plan (and retirement) with a greater understanding of our accounts, risk and creating superior retirement-ready portfolios. We go into those subjects in greater detail at Retirement Club. And we make it as easy to understand and digest as possible. You might discover you can self-direct your retirement.
Can you retire on one million dollars in Canada?
If you’re a self-directed investor who is approaching retirement or already in retirement you should certainly join the club. All of our club members tell us they receive or have received incredible value from the information and experience. There is a modest subscription fee.
Retirement Club …
And yes, we’ll teach you how to use a retirement calculator. Here’s a MayRetire 101 video …
Stay tuned for the MayRetire 2.0 video. Use the Contact Dale button at the top of this page if you’d like to receive a notice of when that is live on the MayRetire YouTube channel.
You can also use Contact Dale if you’d like a Zoom Call tour of Retirement Club. I’m happy to show you around.
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Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop. Canadians can have it all. That’s a wonderful shop for retirees who want planning and low-fee portfolios. Of course, it’s a great option for those in the accumulation stage as well.
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.
Thanks for reading and watching. Have a great Sunday and week.
Dale
