1. Who is the Spousal RRSP designed for?
The Spousal RRSP is designed primarily for couples in Canada who want to optimize their retirement savings and reduce their overall tax burden.
The higher-earning spouse benefits from a tax deduction when contributing to the Spousal RRSP.
In retirement, withdrawals by the lower-income spouse are taxed at their rate, potentially reducing the couple’s overall taxes.
2. What is a Spousal RRSP account？
A Spousal RRSP (Spousal Registered Retirement Savings Plan) is a Canadian retirement savings account designed for couples to build retirement savings while taking advantage of income-splitting opportunities.
Key Features:
Contributions by the Higher-Earning Spouse: One spouse (the "contributor") contributes to the Spousal RRSP in the name of the other spouse (the "annuitant").
Tax Deduction for the Contributor: The contributor claims a tax deduction for the contribution, reducing their taxable income for that year.
Ownership by the Annuitant: The RRSP belongs to the annuitant spouse, who controls the account and eventually withdraws the funds.
Tax Benefits in Retirement: When the annuitant spouse withdraws money from the RRSP during retirement, it’s taxed as their income. This is particularly advantageous if the annuitant spouse has a lower income in retirement, as it may reduce the couple’s overall tax burden.
3. How to open a SRRSP account?
You can submit an application in the app or on the website. Click here to check the detailed account opening instructions.
4. Things to consider with a Spousal RRSP
Contribution Limits: Amounts deposited to a Spousal RRSP are subject to the contributing spouse's RRSP contribution limit for the year.
Attribution Rules: If the annuitant withdraws funds from the Spousal RRSP within three calendar years of the contributor's deposit, the withdrawal is taxed back to the contributor.
5. Withholding taxes on Spousal RRSP withdrawals
When withdrawals are made from a Spousal RRSP, withholding taxes are applied, just as they are with a regular RRSP. However, there are additional rules to consider because of the spousal attribution rules that may result in the withdrawal being taxed back to the contributing spouse.
Attribution Rules:
If the annuitant spouse (the owner of the RRSP) withdraws funds within three calendar years of the contributing spouse’s contribution, the withdrawn amount is taxed in the hands of the contributor (not the annuitant).
Example:
In 2024, the contributing spouse deposits $5,000 into the Spousal RRSP.
If the annuitant spouse withdraws money in 2024, 2025, or 2026, the contributor is taxed on the withdrawal.
Beyond Three Years:
If no contributions have been made by the contributing spouse in the last three calendar years, the withdrawal is taxed as income for the annuitant spouse.
Withholding Tax is Paid in Advance:
The withholding tax is a prepayment of taxes. The actual tax owed will be calculated when the annuitant (or contributor, under attribution rules) files their income tax return.
6. Fees of SRRSP account
No account maintenance fees are charged.
7. Maturity of Plans
An SRRSP (Spousal Registered Retirement Savings Plan) matures by the end of the year in which the annuitant turns 71 years old. By the last day of that year, clients must withdraw their funds, transfer them to a Retirement Income Fund (RIF), or use them to purchase an annuity.
8. Beneficiary Designation
Residents of Quebec cannot designate beneficiaries on their SRRSP account, as this can only be done through a last will and testament.
In other provinces, beneficiaries can be individuals or entities. If an entity such as a charity or estate is chosen, only one beneficiary is allowed. If the applicant wants multiple beneficiaries, only individuals are permitted.
9. Account insurance
SRRSP accounts are also counted as a separate account for CIPF (Canadian Investor Protection Fund) coverage, and so are eligible for an additional 1 million CAD coverage under CIPF.
