Page 88 - A Canuck's Guide to Financial Literacy 2020

88

Spousal Registered Savings Plan

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 RRSPs 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 RRSP account would make sense in this example.

Opening a Spousal RRSP

Spousal RRSPs 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 RRSP 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 RRSP 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 RRSP
instead.

Withdrawing from a spousal RRSP

Withdrawals from spousal RRSPs 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