Spousal Registered Retirement Savings Plan also known as a Spousal RRSP is a savings account registered with the CRA for the purpose of saving for your spouse or common law partner. Spousal Registered Savings Plan are similar to regular RRSPs and are known to be effectively used when there is an income disparity between spouses. For example, one spouse is a yoga instructor with a yearly income of $30,000 while the other is able to generate $150,000 in gross income per year. A Spousal Registered Retirement Savings Plan account would make sense in this example.
Opening a Spousal Registered Retirement Savings Plan
Spousal Registered Retirement Savings Plan are opened in the name of the lower income spouse. The lower income spouse is known as the annuitant, who in retirement will reap the withdrawal benefits. The spouse with the higher income is known as the contributor and they will be making the contributions into the spousal RRSP for the benefit of the lower income spouse.
For example, Jeff, age 45, makes $150,000 a year as a corporate executive while his wife Jennifer, age 42, makes $30,000 per year. They both can contribute up to 18% of their income into an RRSP. Jeff can contribute up to $27,000 and Jennifer can contribute $5,400. Jeff’s contribution into the Spousal Registered Retirement Savings Plan will allow Jennifer to withdraw income from her spousal RRSP in retirement at a lower tax bracket.
Contributing to a spousal RRSP
You’re allowed to contribute to your Spousal Registered Retirement Savings Plan up to your RRSP deduction limit. Be aware that the contributions will reduce your deduction limit.
Continuing on our example above, Jeff’s RRSP deduction room is $27,000. He decides to contribute $7,000 into his RRSP and another $20,000 to the spousal RRSP. Jeff will be able to claim an income tax deduction and the funds invested in the spousal RRSP will be able to grow tax free.
Contributing After Age 71
At 71, Jeff’s own RRSP will turn into a RRIF and he cannot make any more contributions. As Jeff’s wife is 3 years younger than him, he can contribute into the Spousal Registered Retirement Savings Plan instead.
Withdrawing from a spousal RRSP
Withdrawals from a Spousal Registered Retirement Savings Plan are permitted and withholding tax rates apply. However keep in mind that tax on withdrawals from a spousal plan will be taxed in the annuitant’s name only if no contributions have been made to the spousal RRSP by the contributor in the year of withdrawal or the past two years before that. If so, then attribution rules would apply.
| Withdrawal Amount | Up to $5,000 | Between $5,000 and up to $15,000 | Over $15,000 |
| Tax Rate withheld for Canadian residents | 10% | 20% | 30% |
| Tax Rate withheld for the province of Quebec | 5% | 10% | 15% |
Attribution Rules on Withdrawals
Attribution rules, also known as the 3-Year Rule, were created for the purpose of discouraging the use of a spousal RRSP for short term income splitting. The goal of spousal RRSPs is to encourage Canadians to accumulate assets for the purpose of retirement income.
For example, Jennifer’s spousal RRSP has a value of $50,000. She wants to withdraw $10,000 in which withholding tax of 20% would apply. Jeff contributed $10,000 last year to Jennifer’s spousal RRSP. Since this contribution by Jeff was within 3 years, then the withdrawal will be taxed in Jeff’s hands due to attribution rules. $10,00 will be added to Jeff’s taxable income in the year of withdrawal.
Exceptions to Attribution Rules
- If the contributing spouse dies within the year of withdrawal, attribution rules will not apply
- If you or your partner become non residents when the funds are withdrawn, attribution rules will not apply
- If your relationship has suffered a breakdown or you and your spouse are living apart, attribution rules will not apply
Contributions after Death
If you pass away and have available contribution room, your legal representative can can contribute into a spousal RRSP on your behalf. The contribution must happen in the year of death or within 60 days after the end of the year in which you become deceased.
In contract with RRSPs, contributions cannot be made to a deceased holder’s RRSP but contributions to a spousal RRSP are permitted pending that the spouse has not reached 71 years old.
Withdrawing in Retirement
Below is an illustration showing how much Jeff and Jennifer can save if they withdraw $25,000 each in retirement. Jeff will withdraw from his RRSP while Jennifer will withdraw from her spousal RRSP. Due to Jeff’s higher income, his tax rate is twice as Jennifer’s. In the example below, the couple are able to save $5,000 a year using spousal RRSPs.
| Jeff’s RRSP – 40% Tax Rate ($) | Jennifer’s SRRSP – 20% Tax Rate ($) | |
| RRSP/SRRSP Withdrawal | 25,000 | 25,000 |
| Taxes Payable | 10,000 | $5,000 |
| After-Tax Income | $15,000 | $20,000 |
| Tax Savings (Annually) | $5,000 |
With a spousal RRSP, you can decide how much of your RRSP deduction limit you want to contribute. If the spouse continues to be in a lower tax bracket in retirement, then you’ve effectively split income.