GUEST COLUMN: Consider RRSPs

A spousal registered retirement savings plan is the same as a regular RRSP

A spousal registered retirement savings plan is the same as a regular RRSP, except that the former is registered in your spouse’s name while you, as the contributing spouse, take a full tax deduction for all the contributions you make to the spousal plan.

Spouse includes a common-law partnership, meaning a common-law partner can make a spousal RRSP contribution if the couple has lived in a conjugal relationship for at least one year or five years together and have a child.

Deposits made to a spousal RSP cannot exceed your personal contribution limit, but your contribution can be made to a spousal RSP, your personal RSP, or split between the two accounts.

Furthermore, deposits made to a spousal RSP do not affect your spouse’s RSP contribution limit for the year.

The primary benefit for using a spousal RSP is future income splitting, usually around retirement.

The assets in a spousal RSP are deemed to be those of the plan holder, or annuitant, which in this case is your spouse.

When funds are withdrawn from the spousal RSP, they are taxed in the hands of your spouse, at his/her marginal tax rate.

Hence, the most advantageous scenario for a spousal RSP occurs when the plan holder would otherwise have little retirement income, while the contributing spouse would have a significant amount of income.

Please be advised that there are a few restrictions on spousal RSP withdrawals:

in order for withdrawals to be taxed in the hands of the plan holder, the contributor must not have made any contributions into the spousal plan in the year of the withdrawal, or the two preceding years.

Generally, if there will be a big discrepancy between your retirement income and that of your spouse, you should consider a spousal RSP.

Kirbey Lockart is an investment advisor with RBC Dominion Securities. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.

 

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