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Before making a major financial decision you
should consult a qualified professional.
Spousal RRSPs and RRIFs, and
Attribution Rules Regarding Withdrawals
Canadian tax laws allow you
to put funds into either your own RRSP or a spousal RRSP for your spouse or common-law
partner, from which they will eventually make withdrawals. If neither spouse will have a pension from their employment when
they retire, then both spouses should try to have the same amount in
RRSPs. If one spouse will have a pension, then the other spouse should
probably have a greater amount in RRSPs. There are many variables to be
considered when planning future retirement income, including significant
spousal age differences.
In order to equalize RRSPs,
the higher income spouse
can contribute to a spousal RRSP for their partner. When funds are
contributed to a spousal RRSP, the spouse making the contribution gets the
deduction from income when the contribution is made. When funds are
eventually withdrawn, the spouse who is the annuitant of the RRSP (or
subsequent RRIF) will be taxed, not the contributing spouse. However,
there are exceptions to this if the funds are withdrawn too soon after a
spousal contribution. See the information below regarding attribution
splitting can also help to equalize spousal incomes in retirement.
Tax Tip: Try to ensure both spouses will have
approximately the same annual income in retirement.
an online spousal contribution - be careful!
It is much too easy to do an online contribution with the
intention of making a spousal contribution, with result being that your spouse
has actually made the spousal contribution. Perhaps not all online
accounts are the same, but with TD Direct Investing accounts, one must be logged
in as the person who is the annuitant of the account, in order to make an
online contribution to that account. When the online transfer is made, one
is asked if this is or isn't a spousal contribution. When a spousal
account is set up, it will have the name of the annuitant on it, and statements
will say it is a spousal account.
Example: Gerry and Taylor - Taylor wants to contribute to a
spousal RRSP for Gerry. When it is opened, the spousal RRSP will have
Gerry's name on it, and it will be shown as a spousal RRSP. In all
likelihood, to do an online contribution, Taylor or Gerry would have to log into
Gerry's brokerage account or bank account. Whether or not the contribution
is a spousal contribution will have to be indicated at the time of the transfer
to the RRSP. If you aren't 100% positive that you are doing the right
thing, don't do it online, because by the time you get the tax slip and find out
it's wrong, it will be to late to change.
Tax Tip: Be very careful
making online spousal RRSP contributions!!
Spousal RRSP and RRIF attribution rules
Income Tax Act s. 146(8.3)
funds are withdrawn within 3 years of a contribution to a spouse's
RRSP, all or part of the withdrawn amount
will be taxed as income to the spouse who made the contribution. The
Income Tax Act indicates that if an amount taken from the spousal RRSP would normally
be taxable income in the hands of the spouse who is the annuitant of the RRSP, the following will be included in
the taxable income of the contributing spouse - the lesser of:
the total of all
contributions to the spousal RRSP by the contributing spouse in the year,
or in one of the two immediately preceding taxation years, and
the amount withdrawn
When a spousal RRSP has been
converted to a RRIF, it becomes a spousal RRIF, and withdrawals are
made by the spouse (not the contributing spouse). There may be
attribution of income to the contributing spouse for any RRIF
withdrawals that are in excess of the minimum
annual withdrawal for the year, depending on the amount of spousal
contributions in the year or the two immediately preceding taxation years.
To avoid having to include your spouse's
RRSP withdrawals in your income, ensure that you have not contributed to the spousal
plan in the year or in either of the two preceding taxation years.
To avoid having to include your spouse's
RRIF withdrawals in your income, ensure that, if you have contributed to the spousal
plan in the year or in either of the two preceding taxation years, only the
minimum annual withdrawal amount is withdrawn.