Now that you can split pension income in retirement, is it worth it to contribute to a Spousal RRSP?

Income splitting is a tax planning technique designed to shift income from a higher earning spouse to the spouse with little or no income. It can reduce or eliminate potential clawbacks (e.g. OAS, age credit).

Current pension income splitting rules have somewhat diminished the need to use a Spousal RRSP to achieve a tax benefit. But even though this strategy is less popular than it used to be, Spousal RRSPs can still be useful in certain circumstances.

Pension income splitting allows you to transfer up to 50% of eligible pension income. Eligible pension income is restricted to payments from a Registered Pension Plan, RRIF, LIF, LRIF, and lifetime annuity in a registered plan at age 65 and up. If you are under 65, only payments from a Registered Pension Plan will qualify.

The best way to use a Spousal RRSP is when one spouse has a considerably higher income than the other, or has other sources of investment income that won’t qualify for pension splitting.

There are benefits to opening a Spousal RRSP:

  1. You can contribute to a Spousal RRSP (and take the tax deduction) until the end of the year that your spouse turns 71 – even if you are older than 71 – if you have the contribution room. This is a plus for couples with a large age difference between them.
  2. It can provide more flexibility for people who want to retire early.
  3. Spousal RRSPs can be useful for couples planning to purchase a home under the Home Buyer’s Plan. Both spouses could each withdraw up to the maximum of $25,000.

The maximum contribution allowed to a Spousal RRSP is based on the contribution limit of the contributor.

The Three-year Attribution Rule

The “rule of attribution” is a restriction on the owner of a Spousal RRSP making a withdrawal. If the withdrawal is made after the calendar year of the last contribution plus the following two years, it will be considered the owners for tax purposes. Otherwise, it is attributed to the contributor.

If you are nearing retirement, or some other period where the receiving spouse has little or no income, consider making the contribution in December instead of January or February.

An exception to the attribution rule is when the Spousal RRSP is converted to a Spousal RRIF. The owner can withdraw (and pay tax on) the minimum required amount.

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13 Comments

  1. Murray Hooper on February 27, 2016 at 8:38 am

    Thank you Marie. I am in the situation where I am 5 years older than my wife and that due to illness, she has been unable to work most of her adult life. I have been doing a spousal contribution for most of our married life and found it demeaning that when I saw this subject commented on or even worse when I asked questions to the financial ‘spurts that they would tell me how foolish I was, etc. Nice to see someone at least understands that sometimes one size does not fit all.

    • boomer on February 28, 2016 at 11:00 am

      Thanks Murray: I too don’t understand why Spousal RRSPs are not utilized more often and advisers don’t seem to think they are worthwhile. As in your case, they can be ideal for people in certain circumstances.

      As a tax benefit, pension income splitting could be discontinued in the future, but Spousal RRRSPs are a form of income splitting that you can rely on for your retirement years.

  2. Harry on February 28, 2016 at 10:01 am

    About 17 years ago we moved our accounts to a big bank full service brokerage. My wife had a slightly higher income than mine in the 2-3 years previous and our advisor suggested that my RRSP become a spousal account. A spousal contribution was NEVER made. Fast forward 15 years, we decided to move our accounts to a discount brokerage in part because they offered USD RRSP accounts. The discount brokerage did not however offer a spousal USD RRSP account. Would anyone know how to change the account back to a non spousal especially given that it had never been used as one ever?

    • boomer on February 28, 2016 at 11:02 am

      Harry, I don’t understand your question. If a contribution was never made the account would be $0. Just close it and open a regular RRSP for yourself.

  3. Harry on February 28, 2016 at 4:57 pm

    I made all the contributions into my spousal RRSP(maxed out), my spouse did not end up making any contributions to my spousal plan. My income became more or equal to hers, so no advantage for her to contribute into my spousal plan which is why it was opened, theory being, if it wasn’t actually used as a spousal plan no big deal. I just found that it had ramifications when I decided to move our accounts to another brokerage. I liked that they offered USD RRSP accounts in addition to low fees. I was not able to have a USD account since my plan had been opened as a spousal plan. I’m just saying that if you’re not sure you will use the tax benefits of the spousal plan don’t assume it doesn’t matter. In hindsight I should of had my own non spousal RRSP account for my contributions and a separate spousal RRSP account if a spousal contribution was actually made. We didn’t use the spousal feature and it limited my account type options later on. I can not find anything direction on CRA sites or personal finance blogs that there is a way to cancel the spousal plan designation when it was never used.
    I think you can convert a non spousal to a spousal but not the other way around whether you use it for its purpose OR NOT.

    • boomer on February 28, 2016 at 7:05 pm

      Sorry for the confusion Harry. You can combine a spousal and non-spousal account but it all becomes a spousal – so no help to you there. You are right in that opening this plan was of no benefit to you.

      Most brokerages (and discount brokerages) offer a US$ RRSP option and should accept a spousal plan as it’s just another type of RRSP. It would just be a transfer of account. You should then open another regular RRSP for yourself for future contributions and leave the spousal plan alone.

  4. Cool Koshur on March 7, 2016 at 2:20 pm

    Well I am little confused with “Three year attribution rule”. Say I (contributor) make Spousal RRSP contribution of $5000 each in Dec 2013 and then again in Dec 2014 and Dec 2015 into my wife’s spousal RRSP account. I am presuming no growth and my wife doesn’t work. As of today, my wife has $15000 growth in her spousal RRSP. . Now she wants to withdraw all $15000, would “all” of this amount be taxed at her tax rate or it would be added as income to contributor and taxed at my rate. (OR) Only $5000 would be taxed her rate since contribution year (Dec 2013) + 2 additional years and remaining $10000 would be added to my income and taxed at my rate.

    • boomer on March 7, 2016 at 7:09 pm

      @Cool Koshur: If the last contribution was made Dec 2015, your wife can withdraw any amount in (or after) January 2018 as income to her (assuming no other contributions were made in the meantime). In your above example, the entire amount would be added to your income and taxed at your rate.

      • Cool Koshur on March 8, 2016 at 9:38 pm

        Thank you for explaining it.

  5. PIERRE DUCHAINE on October 19, 2016 at 8:52 am

    I had stop using the Spousal contribution when the retirement income came to effect thinking it was not useful anymore. I have always contributed to the maximum to reduce my income tax.
    Now that I am a few years of retirement, I realize the trap I am in: to avoid the claw-back of the OAS, I now need to use up as much RRSP between the time I retire and 65. With pension plan and Q/CCP income it is bringing my tax bracket fairly high.
    Had I continued to contribute to a spousal, I would not have this issue.

    Some my find me lucky to be in this bind, but it is frustrating to have to pay more tax than it saved my. So word to the wise: use spousal RRSP if your spousal income is significantly lower than yours. It will give you options on retirement.

  6. Elaine on January 5, 2018 at 6:38 am

    I am just reading up on spousal RRSPs and being a subscriber on this blog, stumbled upon this year old thread. My income is significantly higher than my husband’s, he is 54 and I am 42. I wondered about opening up a spousal RRSP with me claiming the contribution, however I saw some online articles saying that I can only claim 45% of the he total contribution instead of the full amount. Is this true/accurate?

    • boomer on January 5, 2018 at 10:05 am

      Hi Elaine. If you open a Spousal RRSP, your husband becomes the annuitant/owner of the plan and you are the contributor. You claim the entire contribution on your taxes just like you would with your own regular RRSP.

      • Elaine on January 5, 2018 at 12:08 pm

        Thank you Marie

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