Spousal RRSP

The Spousal RRSP (Registered Retirement Savings Plan for spouses) is an option in Canada that allows a higher-income spouse to contribute to an RRSP in the name of the lower-income spouse. This can help balance income during retirement and reduce the tax impact when both spouses retire. Here’s how it works and how to open one:

How Does It Work?

Contributions: The higher-income spouse makes contributions to the Spousal RRSP but deducts them from their own taxes. This can result in a tax benefit for the higher-income individual by reducing their current tax burden.

Tax Benefit: When the lower-income spouse withdraws money from their RRSP in the future, they will do so at their tax rate, which is likely lower. This way, retirement income is spread out and both spouses pay less tax overall.

Contribution Limits: Contributions to a Spousal RRSP count toward the contributing spouse’s RRSP contribution limit. This limit is the same as if they were contributing to their own RRSP.

3-Year Attribution Rule: If the lower-income spouse withdraws funds from the Spousal RRSP within three years of the contribution, the withdrawals will be attributed to the contributing spouse, which may result in taxes for that person.

How to Open a Spousal RRSP?

Choose a Financial Institution: You can open a Spousal RRSP through banks, credit unions, financial advisors, or investment firms that offer RRSPs.

Documentation: Information from both spouses will be required, including identification and possibly financial data to confirm contribution limits.

Choose Investments: A Spousal RRSP can hold various types of investments, such as mutual funds, stocks, bonds, or GICs (Guaranteed Investment Certificates). The type of investment depends on your retirement goals and risk tolerance.

Contribute Regularly: You can set up automatic monthly contributions or make lump-sum contributions up to your annual contribution limit.

This type of account can be very useful for efficient tax planning, especially when there is a significant difference in income between spouses.

The Spousal RRSP is not a joint account, but an individual account in the name of the lower-income spouse. In this case, both spouses do not share the account. Here’s how it works:

Individual Account: The lower-income spouse is the account holder, but the higher-income spouse can contribute to that account on their partner’s behalf. Contributions are made to an individual account in the name of the lower-income spouse.

Account Control: Although the higher-income spouse makes the contributions, the lower-income spouse controls the account and makes decisions regarding investments and withdrawals.

Tax Benefit for the Contributor: The higher-income spouse receives the tax benefit for the contributions, as they can deduct those contributions from their own taxes.

In summary, each spouse has their own RRSP account. The Spousal RRSP is simply an RRSP in the name of the lower-income spouse, to which the other spouse can contribute—but it remains an individual account.