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How does a spousal RRSP work?

March 10, 2023
min read

Here’s how you can help your partner save for retirement with a spousal RRSP.

Senior couple dancing beside a window

Do you and your partner have different incomes? You might wonder how you’ll both save similar amounts for retirement.

If you generate more income than your partner, your retirement fund will be taxed at a higher rate than theirs.

In addition, due to your partner’s lower income, they’ll have less contribution room in their RRSP than you do.

You can use a spousal RRSP to help fund your partner’s retirement and reduce your taxable income.

Spousal RRSPs are an income-splitting tool that couples can use to:

  • Shelter their retirement fund and investment gains from taxes
  • Even out their income in retirement
  • Get a tax break for contributions, just as a regular RRSP provides

Even if you’re familiar with how RRSPs work (and if you aren’t, check out our blog post: It’s RRSP Season: What You Need To Know), you may not be familiar with spousal RRSPs.

Does a spousal RRSP make sense for you? We’re diving into how this retirement savings tool works:

What is a spousal RRSP?

Before we begin, let’s start by clarifying the definition of “spouse”:

A spouse is either the person you’re married to or your common-law partner who you live with and have a relationship with.

Your relationship is considered common-law after you’ve lived together for a certain length of time. In Manitoba, it’s typically 3 years, but it may vary based on your situation.

So, how does a spousal RRSP work?

  • Your partner opens a spousal RRSP in their name.
  • You contribute to it and get a tax deduction for your contributions.
  • Your partner can eventually withdraw those funds, which are taxed at their marginal tax rate instead of yours.

Keep in mind that as the owner of the plan, your spouse has complete control over how those funds are invested or withdrawn.

You might be wondering: Can both spouses contribute to a spousal RRSP?

No. Either you will contribute to your partner’s spousal RRSP, or they will contribute to yours.

Only one partner makes contributions to the account, and the account is owned by the other person. In addition, only the account owner can withdraw funds from the spousal RRSP.

What if your spouse is younger than you are?

You can no longer contribute to your personal RRSP at the end of the year you turn 71—you must either withdraw the funds all at once (which is not recommended, because you’ll be taxed at a high rate) or convert it to a Registered Retirement Income Fund (RRIF).

However, you can continue contributing to a spousal RRSP and get tax deductions for it, as long as your partner is younger than 71.

You can use any leftover RRSP contribution room you may have to contribute to your spouse’s RRSP until they also turn 71.

Spousal RRSP contribution rules

With a spousal RRSP, the higher-earning partner contributes to the RRSP of the lower-earning partner.

But contributing to a spousal RRSP does not give you additional contribution room for your personal RRSP.

Instead, you use up your personal contribution room when you add funds to your spouse’s RRSP.

Your RRSP contribution room for the year will be the lower of these two numbers:

Maria earns $100,000 per year. Assuming she isn’t carrying forward any contribution room from previous years, she can contribute $18,000 to her RRSP in 2023.

Her husband James is a stay-at-home parent. He earns $10,000 per year doing odd jobs, which means he can only contribute $1,800 to his RRSP.

Given these differences, it would be challenging for this couple to build up equal-sized retirement funds.

With a spousal RRSP, Maria can use some of her personal RRSP contribution room to help James save for retirement.

Who can benefit from a spousal RRSP?

Spousal RRSPs are best for couples who have a difference in income—in other words, when one partner generates more income than the other.

In these cases, the higher-earning partner can contribute to their spouse’s RRSP, and when the money is withdrawn, it will be taxed at the lower-earning partner’s marginal tax rate.

Since Maria earns $100,000 per year, her marginal tax rate is 32.30%.

James earns $10,000 per year, making his marginal tax rate 18.38%.

If James' marginal tax rate is the same when he  withdraws the funds from his spousal RRSP, the money will be taxed at his lower rate of 18.38%.

The 3-year attribution rule

What if you want to take money out of a spousal RRSP?

The spousal RRSP withdrawal rules are different than your personal RRSP.

The benefit of a spousal RRSP is that the income can be taxed at the marginal tax rate of the lesser-earning spouse.

But if those funds are withdrawn too soon after you make a contribution, the money will be taxed at your marginal tax rate, not your spouse’s.

So, how long does your spouse need to wait before withdrawing money from their spousal RRSP?

It all depends on the date of your last contribution.

If your partner wants to withdraw funds from their spousal RRSP at their tax rate instead of yours, you must immediately cease all contributions to it.

Then, your partner must wait out the remainder of the current calendar year, plus two additional calendar years.

This is known as the 3-year attribution rule.

If you contributed to a spousal RRSP in March 2023, the earliest your partner could withdraw from it at their tax rate is January 2026.

If you contributed to a spousal RRSP in November 2022, the earliest your partner could withdraw from it at their tax rate is January 2025.

Talk about your options with a Cambrian Advisor today

Financial planning can be intimidating. The good news is you don’t have to go through it alone.

At Cambrian, we'd be happy to meet with you and talk about whether a spousal RRSP makes sense for your situation.

Book a meeting at Cambrian Credit Union in Winnipeg or Selkirk today!

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