Spousal RRSP

Spousal RRSP

Strategic income-splitting for couples. Optimize your retirement taxes together and save thousands.

3 Years
Attribution Rule Period
Age 71
Convert to Spousal RRIF
Tax Split
Income Equalization Strategy

Professional Explanation

A Spousal RRSP is a strategic variation of a standard RRSP designed for married or common-law couples, enabling income-splitting and tax optimization through the retirement years. The structure is straightforward but powerful: a higher-income spouse contributes to an RRSP owned by the lower-income spouse, allowing the contributing spouse to claim the tax deduction while building retirement assets for the lower-income spouse.

How It Works:

  • • Contributor: Higher-income spouse makes the contribution
  • • Annuitant (Owner): Lower-income spouse owns the account, makes investment decisions, controls withdrawals
  • • Tax deduction: Contributor claims deduction (reduces their tax bill)
  • • Contribution room used: From contributor's RRSP limit, not annuitant's
  • • Ownership: After contribution, funds belong to annuitant spouse

Strategic Advantage - Income Splitting:

The primary benefit is equalizing retirement income. In a two-income household with unequal earnings:

  • • Without Spousal RRSP: Higher-earner retires with large RRIF/pension income (higher tax bracket)
  • • With Spousal RRSP: Lower-earner has more retirement income, both retire at similar income levels (lower overall tax)
  • • Result: Significant tax savings on retirement withdrawals

Three-Year Attribution Rule:

This is the critical restriction. If a contribution is made to a Spousal RRSP:

  • • Withdrawal in year of contribution: Attributed to contributor (taxed in contributor's hands)
  • • Withdrawal in following year: Attributed to contributor
  • • Withdrawal in second following year: Attributed to contributor
  • • Withdrawal in third+ year: Taxed as annuitant's income (the benefit achieved)

Home Buyers' Plan (HBP) with Spousal RRSP:

  • • Can withdrawal from Spousal RRSP under HBP rules
  • • Uses the same $60,000 aggregate HBP limit with other RRSPs
  • • Contribution room calculation is complex when both spouses use HBP

Flexibility Features:

  • • Annuitant makes all investment decisions
  • • Annuitant decides when to withdraw
  • • Can remain segregated from contributor's personal RRSP
  • • Clear legal ownership (annuitant's property for family law purposes)

Simple Explanation

Easy to Understand

A Spousal RRSP is a retirement account that a higher-earning spouse opens for a lower-earning spouse. It's designed for couples who have unequal incomes.

Here's why it matters: When you retire, you usually pay less taxes if you earn less money. So if one spouse earns way more than the other, they'll pay a lot of taxes in retirement.

Solution: The higher earner puts money into a retirement account that belongs to the lower-earning spouse. The higher earner gets a tax break when they contribute. Then, when they retire, the lower-earning spouse withdraws the money, and they pay less tax because they're the one with the lower income.

But there's a catch (called the "three-year rule"): If the lower-earning spouse takes the money out within 3 years, the taxes go to the higher-earner instead. But after 3 years, it's all theirs, and the tax benefit kicks in.

It's basically a smart way for couples to plan taxes together and save thousands of dollars over retirement.

Best For

  • Couples with unequal incomes
  • Retirement income splitting
  • Tax optimization strategies
  • Long-term tax planning

Key Benefits

  • Income-splitting in retirement
  • Tax deduction for contributor
  • Lower overall family tax
  • HBP eligibility

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