Spousal RRSP
Definition
An RRSP registered in the name of your spouse or partner, but funded by contributions from you for income-splitting.
Key Takeaways
- Spousal RRSP: one spouse contributes (gets deduction), other spouse owns and pays tax on withdrawals.
- Powerful income-splitting strategy to shift retirement income to lower-earning spouse.
- 3-year attribution rule: withdrawals within 3 calendar years of last contribution taxed back to contributor.
- After 3 years, withdrawals taxed to annuitant spouse at their lower marginal rate.
Detailed Explanation
A Spousal RRSP is a registered retirement savings plan where one spouse (the contributor) makes contributions using their own RRSP contribution room, but the other spouse (the annuitant) legally owns the RRSP and will pay tax on withdrawals. This structure is a powerful income-splitting strategy, allowing high-income earners to shift retirement income to a lower-earning spouse to minimize household taxes in retirement.
The contributor claims the tax deduction for contributions made to the spousal RRSP, reducing their taxable income immediately. However, the funds belong to the annuitant spouse, who will pay tax on withdrawals at their own marginal rate (hopefully lower in retirement). The key rule to remember is the 3-year attribution rule: if the annuitant withdraws funds within 3 calendar years of the last contribution by the contributor, the withdrawal is taxed back to the contributor rather than the annuitant. After 3 years, all withdrawals are taxed to the annuitant at their rate.