Here’s a strategy especially effective during a period when one spouse has little or no earned income. For several years, the spouse earning the higher income contributes the maximum allowable amount to the spousal RRSP. Then the higher-income spouse stops these contributions and begins contributing to his or her own RRSP for two calendar years after the year of the last spousal RRSP contribution.

Now the lower-income spouse withdraws funds from the spousal RRSP. If withdrawals had been made earlier, during the two- to three-year waiting period, they would be taxable to the higher-income earner. But these withdrawals are taxable at the lower-income spouse’s favourable rate. The withdrawn funds can be used as contributions to the higher-income earner’s RRSP or to the couple’s TFSAs.

This strategy can be used once or repeatedly – and should only be carried out with guidance from your advisor. It offers the tax advantage of the higher-income spouse receiving an RRSP tax deduction at a higher rate, while funds are withdrawn from the spousal RRSP at a lower tax rate. And the withdrawals can be invested to gain further tax benefits.