My spouse and I have both been contributing to her RRSP. We plan to withdraw some of this money, after waiting the three years from the last contribution, which was Jan. 10, 2012. We also want to make sure that all the income tax payable on the withdrawals are attributed to her name, since she will be in the lower RRSP tax bracket.
I understand that I as a spousal contributor should not contribute to her spousal RRSP any longer, so that I don’t get dinged with the tax bill on the eventual withdrawals. The question I have is: Is it OK for her to contribute to her own personal portion of this RRSP during the three year waiting period, or would she need to open a different personal RRSP and only contribute to this new one to keep the contributions straightforward for the CRA?
Thanks, Robert S.
Robert S., Spousal RRSPs were originally designed to allow income splitting with your spouse. The idea was that the higher income spouse could make a contribution to his or her spouse’s RRSP - a Spousal RRSP - and get the RRSP deduction. At retirement, the funds could be withdrawn by the spouse and be taxed in his or her name. This allows couples to have an equal amount in RRSPs at retirement, giving them the ability to withdraw funds in both names and reduce their overall tax bill. If spousal RRSPs were not used, all the income would potentially be taxed in the hands of one individual - and lead to a higher family tax bill.
Spousal RRSPs have a three year attribution rule. This means that if you contribute funds into a spousal RRSP and withdraw the funds within three years of the deposit, it will be taxed back in the contributor’s name.
Since you cannot split income from RRIFs until age 65, spousal RRSPs are useful. The new pension income splitting rules have reduced but not eliminated the need for them.
In your specific situation, your wife cannot withdraw funds from her spousal RRSP until 2015 without the income being attributed back to you. If you had made the contribution in Dec. 2011, she could have withdrawn the funds in 2014 and avoided the attribution rules. The attribution rules work on a calendar year basis, and attribution depends on the year in which the deposit was made and not on the specific date of the deposit.
Your spousal RRSP contributions have no bearing whatsoever on your wife’s RRSP contribution room. She is free to make contributions to her own RRSP as long as she has contribution room.
The receipts you receive from the institution where you have invested your RRSPs should clearly mark whether it is a spousal or personal contribution and who the owner of the account is. Therefore, you should not need to open multiple spousal RRSP or personal RRSP accounts.
Clay Gillespie, a certified financial planner and chartered investment manager, is a financial adviser and managing director at Rogers Group Financial in Vancouver. The views expressed are those of the author and not necessarily those of Rogers Group Financial, which makes no representations as to their completeness or accuracy.