Spousal RRSPs

Here is a quick summary of the Benefits of a ScotiaMcLeod Spousal RRSP

Contributing to a spousal RRSP is an income-splitting technique that lets you reduce your taxes, both now and when you retire. Even with the pending changes which allow spouses to split retirement pension income including RRSP/RRIF income after age 65, spousal RRSPs will still make sense if your spouse will be in a lower tax bracket than you at retirement (e.g. if you have a pension or significantly higher RRSP balances). Spousal RRSPs will still allow income splitting prior to age 65, RRSP contributions for individuals over 71 (who have a younger spouse) and greater homebuyers withdrawal options.

Here are some of the benefits:

1. You receive an immediate tax break for your contributions to the spousal RRSP. Your contributions are deducted from your overall contribution limit.
2. The RRSP is in your spouse's name (as annuitant) so at retirement, your spouse can withdraw the funds at his or her lower tax bracket.
3. You can combine your spouse's regular RRSP contributions and your Spousal RRSP contributions in the same account under your spouse's name, to simplify administration and save on fees. However, the entire account is considered spousal, and your spouse would need to wait 3 years from your last ever spousal contribution to make a withdrawal. Otherwise, attribution rules say that any withdrawal from the account is considered spousal. (Please consult us to discuss the pros and cons of co-mingling a spousal and regular RRSP). Minimum withdrawals prior to the 3 year attribution period are allowed from a spousal RRIF.
4. Because of the 3 year attribution rules on withdrawals from spousal RRSPs described in #3, it is better to make spousal contributions before Dec. 31 each year. A contribution must stay in the spousal RRSP for three calendar years before it is withdrawn, or the withdrawal will be attributed back to the contributor. Under this rule, if your contribution to the spousal RRSP is made in the normal January or February period, your spouse has to wait a year longer (to avoid having the withdrawal attributed back to the contributor) than if it had been made in December.

You should be aware that you cannot transfer from your RRSP to your spouse's RRSP. The decision needs to be made each year when you contribute. As a general rule, you can wait until you are around 45-50, at which point your and your spouse's retirement income will be more predictable, and still have many years to fund the spousal RRSP if required.

Setting up a spousal RRS is easy. Simply contact us at 416-863-7777 or 1-800-387-9273 or email us at spiessmcgladeteam@scotiawealth.com. We would be happy to discuss your needs with you and pull together all the paperwork. We can then send you pre-completed forms for your review and signature.

More on spousal RRSPs

From Scotia

• Spousal RRSPs

From Canada Revenue Agency

• Canada Revenue Agency on contributing to a spousal RRSP
• Canada Revenue Agency on withdrawing from a spousal RRSP
• Canada Revenue Agency FAQs on pension income splitting
• Canada Revenue Agency joint election to split pension income (T1032) form

From other sources

• AimTrimark on pension income splitting (March 2007)
• Jamie Golombek from AimTrimark on pension splitting (December 2006)