Registered Retirement Savings Plans (RRSPs) are an important tool for Canadians to save for their retirement while potentially reducing their tax burden. One question, among a few, to consider is whether they can transfer their RRSP to their spouse. While this may seem like a simple solution to equalize retirement savings, there are some important tax implications to consider.
A spousal RRSP is a great option for equalizing your retirement savings and to take advantage of lower marginal tax rates. In this article, we’ll answer some questions about if you can transfer your RRSP to your spouse, and why a spousal RRSP can be a much better retirement saving strategy for you.
Can my RRSP account be transferred to my spouse?
No, but with specific exceptions for a breakdown in marriage or common-law partnership. In which case, you would have to use a T2220 form | PDF 33.9kbOpens a new website in a new window from the Canada Revenue Agency (CRA). You can only do a direct transfer of funds from one RRSP to another RRSP that you own. Otherwise, it is not possible.
When you contribute to your RRSP account, you receive a tax deduction on the contribution amount. The idea is that the money will be taxed when it’s withdrawn from the account, presumably during retirement when your income and tax rate may be lower. When you transfer your RRSP to your spouse, it’s essentially like withdrawing the funds and then gifting them to your spouse, which would trigger significant tax consequences.
When you withdraw from your RRSP, the entire amount is subject to taxation at your marginal tax rate and triggers withholding tax. This means that if you’re a high-income earner and you transfer your RRSP to your low-income spouse, the tax hit may be significant for you as that higher income earner.
Additionally, if the transferred RRSP funds are not immediately reinvested into an RRSP or other registered account like a Registered Education Savings Plan (RESP) or Tax-Free Savings Account (TFSA), your spouse could experience long-term tax implications.
Can I move funds from my RRSP to my spouse’s RRSP?
No. You can’t move funds from your RRSP to your spouse’s RRSP. Funds in your RRSP can’t be moved to another RRSP that does not have the same annuitant as the RRSP where the funds are coming from. If you’re the owner of both accounts, then you can do a direct transfer between both accounts.
Can I give or transfer my RRSP to my spouse after death?
Yes, it’s possible to transfer your RRSP to your spouse after your death. When you die, your RRSP will be considered as a taxable disposition and the full value of the account will be included as income on your final tax return. In this instance, you would use the T2019 form | PDF 42.9kbOpens a new website in a new window from the CRA website.
If you name your spouse as the beneficiary of your RRSP or via a will, they will be able to receive the remaining balance of your account tax-free as a spousal rollover. This means that the funds will be transferred to your spouse's RRSP or RRIF and will be treated as if they had contributed to the account themselves.
The beneficiary will also receive the full market value at the date of death with the tax obligation arising in the estate and paid by the estate.Alternatively, if you name a non-spousal beneficiary, such as a child or other family member, the balance of your RRSP will be distributed to them as a lump-sum payment.
It’s important to note that the rules surrounding RRSPs can be complex, and the tax implications of transferring funds after death can vary depending on individual circ*mstances. As such, it may be helpful to speak with an advisor to understand the best way to structure your estate plan and ensure that your wishes are carried out in the most tax-efficient way.
Why is a spousal RRSP a better option?
A spousal RRSP is a retirement savings plan that allows you to contribute to the RRSP of your partner. This option is usually a better strategy than transferring an RRSP to your spouse because it provides many benefits. Some of these benefits include:
- You will have more control and flexibility over your retirement savings.
- You decide when you withdraw the funds subject to the RRSP withdraw rules.
- You can potentially withdraw the funds in a period when you have a lower tax rate.
- The contributions are tax deductible from your income.
- You can reduce your overall tax liability by income splitting.
- You and your spouse can both build up retirement income quicker.
Overall, a spousal RRSP is a better option for couples looking to manage their retirement savings in a tax-efficient manner while maintaining control over their funds. It’s important to work with an advisor if you’re considering a spousal RRSP so that you and your spouse can get that personal touch on your retirement saving strategy.
FAQs
How do Spousal RRSPs work? A spousal RRSP allows you to contribute money to your spouse or common-law partner's registered retirement savings plan, up to your personal contribution limit. When a contribution is made to the spousal RRSP, the contributor receives a tax deduction.
What is the advantage of a spousal RRSP? ›
The main advantage of a spousal RRSP is that it allows a couple to split their RRSP income during retirement and take advantage of lower marginal tax rates. In other words, you'll pay less tax on two incomes of $50,000 than one income of $100,000.
Who claims the spousal RRSP contribution? ›
Only the annuitant of the spousal RRSP will receive a tax slip and only the annuitant can claim the taxes withheld on their tax return.
What is an example of a spousal RRSP 3 year rule? ›
Spousal RRSPs come with a three-year attribution rule, which only permits withdrawals three years after the deposit date. So, for example, if you deposit funds into a spousal RRSP on January 1, 2024, your spouse or common-law partner won't be able to withdraw the funds until January 1, 2027.
Who is the beneficiary of a spousal RRSP? ›
the spouse or common-law partner is designated in the RRSP contract or the deceased annuitant's will as the sole beneficiary of the RRSP.
Can you split income with your spouse in Canada? ›
To be eligible to split income in Canada, both partners must live together in Canada during the appropriate tax year, except in certain cases involving medical, educational, or business issues.
Can I withdraw from my spousal RRSP? ›
You can make a spousal RRSP withdrawal whenever you choose to. However, withdrawals are generally included in income and subject to tax in the year of withdrawal. It's important to remember that it is the annuitant of the spousal RRSP, not the contributor to the spousal RRSP, who is entitled to make withdrawals.
Can you split RRSP with your spouse? ›
Not restricted to 50%
After age 65, the pension income splitting rules allow you to split up to 50% of your RRIF income with your spouse. With spousal RRSPs, you determine the amount of income to split by deciding how much to contribute to the spousal RRSP.
Can you combine a spousal RRSP and a regular RRSP? ›
Expert Answer: Yes it is possible to combine a spousal plan and an individual plan, as long as both plans have the same annuitant. However, when the two plans are combined, the combined plan will be considered a spousal plan.
What happens to RRSP after 70? ›
In the year you turn 71 years old, you have to choose one of the following options for your RRSPs: withdraw them. transfer them to a RRIF. use them to purchase an annuity.
The HBP allows you and your spouse or common-law partner (collectively referred to as “spouse”) to each withdraw up to $35,000, tax-free, from your respective RRSPs. The funds withdrawn may be used towards a down payment on the property or to help offset costs such as legal or moving fees.
Can I use my spouse's RRSP limit? ›
A spousal RRSP lets couples access up to $35,000 each for a total of $70,000.
Who owns a spousal RRSP? ›
With a spousal RRSP, your spouse becomes the annuitant (the owner) of the account. They make investment decisions for the account and can withdraw funds from the account at any time. You can contribute to a spousal RRSP, but only the annuitant can make withdrawals from it.
What happens to RRSP if you leave Canada? ›
Registered Retirement Savings Plan (RRSPs) being an interest in registered plan are not subject to a deemed disposition upon emigration. An individual has the option to retain the RRSP even if they become a non-resident of Canada but will no longer accumulate RRSP contribution room.
What happens to retirement money when someone dies? ›
When a participant in a retirement plan dies, benefits the participant would have been entitled to are usually paid to the participant's designated beneficiary in a form provided by the terms of the plan (lump-sum distribution or an annuity).
What is the main benefit of a RRSP? ›
An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan.
What are the benefits of maxing out RRSP? ›
It makes sense to maximize your RRSP contributions if you're expecting to have a lower tax rate in retirement than you do now. This is because an RRSP offers a tax deduction now, but when you make withdrawals (presumably in retirement), the full amount of the withdrawal is included in your taxable income.
What is a spousal contribution? ›
A spousal IRA is a type of tax-advantaged retirement account that allows a working spouse to contribute to a non-working spouse's savings. To qualify for a spousal IRA, you and your spouse must file your taxes jointly and adhere to normal IRA contribution limits.
