The main benefit of a Spousal RRSP is that it enables a person to split future taxable retirement income with their spouse.
A Spousal RRSP is a modified form of the Individual RRSP. With a Spousal RRSP, the spouse or common-law spouse is the registered account owner and the plan’s annuitant. This means that withdrawals from the spousal plan are recorded in the annuitant spouse’s income tax return.
An additional benefit of a Spousal RRSP Plan is that both spouses can contribute to the same spousal plan. Both can be contributors to the same plan and have their individual contributions recorded in their respective income tax returns. This could potentially simplify a couple’s finances, reduce the number of RRSP plans maintained and potentially reduce their investment costs.
Note: One restrictive feature of a Spousal RRSP is imposed on withdrawals made from a Spousal plan in the current year or the two prior years. The Canada Revenue Agency (CRA) dictates that if the non-annuitant spouse contributes to the Spousal Plan in the current year or the two prior years, and the annuitant makes a withdrawal, then the amount of the withdrawal will be included in the non-annuitant spouse’s taxable income, not the annuitant’s income, in the year of the withdrawal. When determining which spouse is to include the withdrawn funds as taxable income, the date of the contributions to the Spousal RRSP is used, not the date when the contribution was claimed on the income tax return.
Example: If Bob and Mary are married and Mary wishes to establish an RRSP so that Bob can receive an income in retirement, she could open a Spousal RRSP. The plan would be registered in Bob’s name and Bob would be listed as the plan annuitant, which means that all withdrawals from the plan will be included in Bob’s annual income tax return. Mary would be listed as the contributor so that all of Mary’s contributions to the Spousal Plan would be recorded in Mary’s annual income tax returns. This means that a Spousal Plan enables Mary to contribute to an RRSP, record her contribution in her income tax return, and have future withdrawals from the plan recorded in Bob’s annual income tax returns as his income. The following flowchart illustrates this type of spousal RRSP process:
The following flowchart illustrates where both Mary and Bob are contributors to Bob's Spousal RRSP:
Note: The timing of your withdrawal is an important consideration as a couple moves closer toward retirement and they wish to receive an income from a Spousal RRSP. To avoid this restriction, contributions by a non-annuitant spouse should cease three years prior to any withdrawals from the plan.