Insights & advice
How do spousal RRSPs work?
January 2023 – 15 min read
A spousal RRSP helps couples even out their retirement income in retirement
Usually, the higher income spouse makes contributions for the lower income spouse
Contribution and withdrawal rules for spousal RRSPs are similar to regular RRSPs
What is a spousal RRSP?
A spousal registered retirement savings plan (RRSP) lets married and common-law couples:
- Even out retirement savings between 2 partners
- Split their income after they retire by withdrawing from their annuity or registered retirement income fund (RRIF)
- Reduce the amount of income tax they pay
How do spousal RRSPs work?
Usually, the spouse with higher income opens and contributes to a spousal RRSP for their partner.
Here is an example. One spouse works and earns a great salary, while their spouse or partner is a stay-at-home parent. When the couple retires, they get $100,000 each year from the working spouse’s large savings, and that money is taxed in at the working spouse’s marginal rate.
With a spousal RRSP, the working spouse makes annual contributions to the other spouse’s account. When they retire, they each get $50,000 in retirement income. It’s the same total, but because each spouse is taxed at a lower marginal rate, they’d pay less total tax than in the first case.
The spousal RRSP is registered under the name of the spouse making the lower income (also known as the annuitant) and the plan is theirs. This person makes the investment decisions and is the only one allowed to withdraw money.
Generally, upon divorce or relationship breakdown, spousal RRSPs are treated as family assets. They can be evenly split and transferred tax free.
Like regular RRSPs, spousal RRSPs must be converted to a RRIF or an annuity at the end of the year the annuitant turns 71.
Advantages of a spousal RRSP
Spousal RRSP contributions lower the contributor’s taxable income either in the year of contribution or carried forward to future years if desired.
When couples retire and withdraw funds from their RRIF or annuity, they can split income to help pay less income tax.
Home Buyers’ Plan
If you’re buying your first home, you can borrow up to $35,000 from your RRSP as part of the Home Buyers’ Plan. A spousal RRSP lets couples access up to $35,000 each for a total of $70,000.
Lifelong Learning Plan (LLP)
To finance full-time training or education you can withdraw up to $10,000 per calendar year, to a total of $20,000.
Contributions after age 71
You can’t contribute to your own RRSP after Dec. 31 of the year in which you turn 71. However, if your spouse is younger than 71, you can continue to contribute to their spousal RRSP if you have contribution room.
Disadvantages of a spousal RRSP
Three-year attribution rule
From the time a spousal RRSP contribution is made, it must stay in the account for the rest of the calendar year plus 2 more years before money can be withdrawn as the annuitant’s taxable income. If money is withdrawn within 3 years, it will be included in the contributor’s taxable income.
This rule doesn’t apply to Home Buyer’s Plan or Lifelong Learning plan withdrawals, which can be made within 3 years of a contribution. This rule also doesn’t apply to for spousal withdrawals after the relationship ends, or if the contributor dies during the year of the withdrawal.
The 3-year attribution rule doesn’t apply to the minimum amount of a RRIF payment, but would apply for any amount over the minimum.
Otherwise, withdrawal rules for a spousal RRSP are the same as a regular RRSP.
Spousal RRSP contribution rules
Your RRSP contribution limit is the same whether you have 2 accounts or 1.
If your contribution limit is $20,000, you can divide that amount between your RRSP and a spousal RRSP. You can put $15,000 in one and $5,000 in the other or divide it any other way you like as long as you don’t contribute more than $20,000. A spousal RRSP doesn’t give you additional contribution room.
Like a regular RRSP, you can keep adding to a spousal plan until the end of the year your spouse turns 71.
Contribution deadlines for spousal RRSPs are the same as regular RRSPs.
Now that you know more about spousal RRSPs, why not meet with your advisor to:
Create a plan to save for retirement
Determine how a spousal RRSP can help you achieve your savings goals
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.