3 types of RRSPs

A brief look at how individual, spousal and group RRSPs work.

The most common type of RRSP is an individual plan that you open for yourself. If you are married or have a common-law partner, you can also open a spousal RRSP. Another option is joining a group RRSP if your employer offers this type of plan.

1. Individual RRSP

An individual RRSP is an account that is registered in your name. The investments held in the RRSP and the tax advantages associated with them belong to you.

You can choose to build and manage your RRSP investment portfolio yourself with a self-directed RRSP or work with an advisor.

2. Spousal RRSP

A spousal RRSP is registered in the name of your spouse or common-law partner. They own the investments in the RRSP, but you contribute to it. You get the tax deduction for any contributions you make to a spousal RRSP. Any contributions you make reduce your own RRSP deduction limit for the year. They won’t affect how much your spouse can contribute to their own RRSPRRSP See Registered Retirement Savings Plan.+ read full definition.

A spousal RRSPSpousal RRSP An RRSP for spouses or life partners where the higher earner puts money into a plan in their spouse’s name. The spouse can use the funds after a certain time period. You use it to split income in retirement, which lowers the tax you have to pay.+ read full definition is a way for you and your spouse to split your income more evenly in retirement. That means the combined income taxIncome tax A charge you pay based on your total income from all sources. The Canadian government and your province set the rate.+ read full definition you pay as a couple may be lower than what you would pay if all your savings were in a single RRSP. You may want to do this if you earn more money than your spouse and you’re likely to be in a higher tax bracket when you both retire. Or if you have a pension plan and your spouse doesn’t.

To qualify for a spousal RRSP, you must:

  • have lived together as a couple for at least 12 months,
  • have a child together by birth or adoption, or
  • share custody and support of your partner’s children from a previous relationship.

If your spouse takes out money you have contributed:

  • within 3 years of the contribution date – you’ll have to pay taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition on the withdrawal amount
  • 3 years after the contributionContribution Money that you put into a savings or investment plan.+ read full definition date – your spouse will pay tax on the withdrawal amount.

If your relationship ends:

  • if you are married – spouses generally have to divide assets equally
  • if you are living common-law – consider drafting a joint agreement to cover this situation as assets may not necessarily have to be divided equally.

Spousal RRSPs are used to equalize retirement income and minimize tax. It doesn’t make sense to open a spousal RRSP if your spouse’s income will be roughly equal to yours when you retire.

3. Group RRSP

Some employers offer group RRSPs as a benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition to help employees save for retirement. You open an individual RRSP, but you contribute to it through your employer. The RRSPs of all of the employees are held at the same financial institution. Here’s how it works:

  • Your plan contributions are usually automatically deducted from your pay. Your employer may match or add to your contributions.
  • Your employer usually pays the costs of opening and managing the plan. You pay any investment costs.
  • The range of investment options is usually limited, depending on where the group RRSP is held.
  • The rules for when and how much money you can take out of the plan vary depending on your employer.

Understand how your particular group RRSP works. The choices and rules vary depending on your employer and where the plan is held. Learn more about group RRSPs.

Take action

Think about opening a spousal RRSP if you earn more money than your spouse and are likely to be in a higher tax bracket when you retire.

Key point

Your employer may make contributions to your RRSP if you join a group plan. They may also pay some of the plan’s fees.

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