Table of Contents
- What Is a Spousal RRSP?
- How Does a Spousal RRSP Work?
- How Much Can I Contribute to a Spousal RRSP?
- What are the Withdrawal Rules for a Spousal RRSP?
- Benefits of Spousal RRSP Contributions
- Drawbacks of Spousal RRSP Contributions
- Frequently Asked Questions (FAQs)
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Spousal RRSPs may not be the most common topic of conversation for couples on date night, but perhaps they should be. This often overlooked financial tool has the potential to contribute immensely to the shared retirement strategy of married or common-law couples. What’s more romantic than that?
Learn more about spousal RRSPs and how they might have a place in your journey to a more financially secure future with your significant other.
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What Is a Spousal RRSP?
A spousal Registered Retirement Savings Plan (spousal RRSP) is a Government of Canada-registered savings account designed to help married couples and common-law partners plan their retirement together.
Similar to the traditional Registered Retirement Savings Plan (RRSP), a spousal RRSP allows a person to contribute to their spouse or common-law partner’s RRSP, while claiming the benefits of the RRSP.
How Does a Spousal RRSP Work?
A spousal RRSP works similarly to a traditional RRSP, with a few key differences.
With a spousal RRSP, an individual opens the account in their name and their husband, wife or common-law partner contributes to it. Typically, the individual who earns less income or is in a lower tax bracket will hold the spousal RRSP.
The spouse or common-law partner who opens the account is known as the annuitant. They become the legal owner of the account and any funds deposited within it.
They’ll also be granted the legal right to make decisions with the money invested, such as investments or withdrawals. All contributions into a spousal RRSP count towards the yearly RRSP contribution limit of the annuitant.
The incentive for the contributor to contribute to a spousal RRSP is the deduction on taxes that they’ll owe on their return.
An individual may contribute to their own RRSP, a spousal RRSP, or both, with adherence to each spouse or common-law partner’s yearly RRSP contribution limit.
That said, a spousal RRSP does not grant either spouse more RRSP contribution room; each account holder must adhere to their own yearly RRSP contribution limit.
How Much Can I Contribute to a Spousal RRSP?
You can contribute the same amount to a spousal RRSP as a traditional RRSP, which is $30,780 or 18% of your income from 2023, plus any unused room in your RRSP.
However, the money contributed to a spousal RRSP must still adhere to the annuitant’s yearly RRSP contribution limit.
You can only contribute to your own RRSP until December 31 in the year that you turn 71. It’s after this date that you’ll have to convert your personal RRSP into a Registered Retirement Income Fund (RRIF).
If your spouse is younger than you, you can keep contributing to the spousal RRSP until the last day of the year that your spouse turns 71.
What are the Withdrawal Rules for a Spousal RRSP?
Withdrawal rules for a spousal RRSP are similar to that of a traditional RRSP, with a few minor exceptions.
Spousal RRSPs come with a three-year attribution rule, which only permits withdrawals three years after the deposit date.
So, for example, if you deposit funds into a spousal RRSP on January 1, 2024, your spouse or common-law partner won’t be able to withdraw the funds until January 1, 2027.
Withdrawals made before three years will require the contributor to pay taxes on the contributions that they made into the account and will be considered income for that year. This includes withdrawing funds after converting a spousal RRIF, so plan accordingly.
Spousal RRSPs only permit tax-free withdrawals under specific Canadian Government programs, such as the Home Buyers’ Plan and the Lifelong Learning Plan.
Benefits of Spousal RRSP Contributions
- Tax deductions. Contributing to a spousal RRSP lowers the contributor’s taxable income while transferring funds to your partner’s account, which keeps more money in both accounts.
- Balance. Balancing the amount in both spouses’ retirement savings can make retirement planning a lot easier and even between both people.
Drawbacks of Spousal RRSP Contributions
- Withdrawal Limitations. The three-year attribution rule puts a time limit on when you’ll be able to use the funds and if you withdraw funds within this window, the taxes you’ll owe on the withdrawal can become expensive.
- Accessibility. With the exception of the Home Buyers’ Plan and the Lifelong Learning Plan, money contributed to a spousal RRSP is meant for retirement, which limits access to funds.
- Relationship Changes. Relationships can experience significant changes like divorce or separation, which means a spousal RRSP requires a level of trust since one spouse controls the power to make investments and withdrawals.
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starting at $0.01 per share (min. $4.95, max. $9.95)
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Frequently Asked Questions (FAQs)
What is the three-year rule for spousal RRSP?
The three-year attribution rule for a spouse RRSP is a waiting period before the spouse receiving the funds can make a withdrawal on the funds submitted. Any money contributed to a spousal RRSP must be in the account for a minimum of three years before withdrawals are permitted.
Who pays tax on spousal RRSP withdrawal?
The annuitant pays the tax on a spousal RRSP withdrawal, as the funds deposited into the account become legally theirs upon deposit.
Can I convert a spousal RRSP to a regular RRSP?
Funds can be moved from a spousal RRSP to a regular RRSP, on the condition that both accounts are registered to the same individual.
What is the difference between a spousal RRSP and a regular RRSP?
A spousal RRSP is a retirement savings account involving two people who are married or in a common-law relationship, while an RRSP is a retirement savings account for an individual person and not their spouse or common-law partner as well.
What are the advantages of a spousal RRSP?
The primary advantage of using a spousal RRSP is that one spouse can avoid paying taxes by contributing to the other spouse’s retirement fund while balancing both of their retirement accounts.
