Spousal RRSPs: Contribution and Withdrawal Rules

If you're looking to unlock tax savings and build your retirement nest egg, consider a spousal Registered Retirement Savings Plan (RRSP). This unique tax-advantaged investment account is tailored for couples, offering a smart way to save for the future while lowering your family's overall tax bill. What makes it different from an individual RRSP is one spouse (the annuitant) owns the account, while the other makes the contributions.

Curious about how it works, its perks, and the must-know rules? We break it all down below, starting with an individual RRSP.

What is a Registered Retirement Savings Plan (RRSP)?

An RRSP is a tax-deferred investment account that allows Canadians to save for retirement. Contributions are tax-deductible, meaning they reduce taxable income in the year they are reported. Investments within the account grow tax free until withdrawal—usually during retirement when the account holder may be in a lower tax bracket.

The rules are as follows: By the end of the year the account holder turns 71, the RRSP must be withdrawn. It can be converted into a Registered Retirement Income Fund (RRIF) or used to purchase an annuity. This ensures retirement savings are gradually withdrawn and taxed, rather than remaining indefinitely tax-deferred.

What is a spousal RRSP?

A spousal RRSP is similar to an individual RRSP but allows a spouse to contribute to an RRSP in their partner's name. The contributor receives the tax deduction, but the funds belong to the account holder or annuitant. This provides an effective way to split income in retirement while also potentially lowering taxes for the higher-earning spouse.

What are possible tax benefits of a spousal RRSP?

A spousal RRSP comes with many tax benefits:

It can even out retirement savings. By helping couples equalize their retirement income, a spousal RRSP can ensure both partners have similar incomes in retirement and encourages joint planning.

It allows splitting income in retirement. Moving income from the higher-earning spouse to the lower-earning spouse can reduce overall tax liability. The first retiree can use the advantage of the split pension while the other partner still earns income from employment.

It can help reduce income taxes. You can receive an income tax reduction in the tax year you report a contribution, up to your annual limit even after you turn 71, as long as your spouse is younger than 71.

It can provide Old Age Security (OAS) clawback protection. If your income exceeds a certain amount, the government starts taking back some of your OAS benefits. OAS clawback protection helps prevent this from happening by keeping the higher-income-earning spouse's income below that threshold.

It can be a solid tax-deferred investment. Investments within the RRSP can grow tax free, as long as no funds are withdrawn. And you can be as conservative or aggressive as you like with those investments.

It can allow you to take advantage of a lower tax bracket. RRSP funds are paid out after retirement and, while this income is taxed, it's likely at a time when you and your spouse are earning less, and therefore are in a lower tax bracket.

It can provide a retirement income for your spouse. If your spouse's current income does not allow them to open an RRSP account of their own, this can help them financially.

It can provide homeownership opportunities. As long as you have the contribution room you can contribute to both your own as well as a spousal RRSP to maximize your savings for a down payment on your first home (up to a maximum of $60,000 each).

What are possible disadvantages of a spousal RRSP?

A spousal RRSP can also come with complexities you'll need to navigate to avoid losing tax advantages:

The attribution rule. If the spouse who owns the RRSP (the annuitant) withdraws funds within 3 years of the last contribution, the Canada Revenue Agency (CRA) will attribute that withdrawal back to the contributing spouse, meaning the contributor will pay the tax on the withdrawn amount. For example, if you contribute in 2025, any withdrawals made by your spouse before the end of 2028 will trigger the attribution rule.

You'll need to plan your withdrawals carefully to ensure they occur outside the 3-year attribution window. If no contributions have been made in the last 3 calendar years, withdrawals will be taxed in the annuitant's hands, not the contributor's.

Limits based on the contributor's income and RRSP contribution room. If the contributor has a lower income or has already used up their RRSP contribution room, they won't be able to contribute much to the spousal RRSP. This could limit the strategy's effectiveness for splitting retirement income or deferring taxes.

Early withdrawals can result in a loss of tax advantages. If funds are withdrawn from a spousal RRSP before retirement or outside a well-planned schedule, the tax-deferral benefits may be lost. Those funds become taxable income in the year of withdrawal, potentially at a higher rate, which could not only erode the intended tax savings but also disrupt the couple's financial or retirement planning.

Lack of control over how the annuitant uses the funds. The annuitant could deplete the RRSP without the contributor's consent. If those withdrawals occur within 3 years of the last contribution, the contributor will be responsible for the tax according to the attribution rule mentioned above. This makes it essential to consider trust and financial responsibility before using a spousal RRSP strategy.

How does a spousal RRSP work?

The contributor can deposit funds into a spousal RRSP, up to their annual RRSP contribution limit. Contributions reduce the contributor's taxable income, while the annuitant owns the account and pays taxes on withdrawals in retirement.

Spousal RRSP contribution limits

The annual RRSP contribution limit applies to the contributor, not the annuitant. For 2025, the RRSP maximum contribution is the lesser of 18% of your earned income in 2024 or $32,490, plus unused RRSP contribution room from prior years.

RRSP contribution limits are attached to you, not to your RRSP accounts.

• Your combined contributions to both your own RRSP and your spouse's cannot exceed your annual contribution limit and still qualify for a deduction.
• Any amount over the limit will not qualify for a deduction.

For example: If you contribute $6,000 to your RRSP account and another $6,000 to your spouse's RRSP account in a tax year where your contribution limit is $10,000, you can only claim an RRSP deduction for $10,000. The remaining $2,000 will not qualify for the RRSP deduction in the current year, but you may be able to carry that amount forward to a year when you don't use all your RRSP contribution room.

Note that your spouse can contribute their annual maximum, so with the addition of your contribution, their RRSPs can grow over the personal contribution limit.

Over contributions to the spousal RRSP

The penalties for making excess contributions to your RRSP can really add up over time. If you over contribute within the $2,000 buffer, there is no penalty. But if you contribute more than your limit, plus the $2,000 buffer, there is a 1% per month penalty that starts the month of the excess contribution. You will have to send a completed T1-OVP return and pay the tax within 90 days of the end of the year.

Early withdrawals from a spousal RRSP

A spousal RRSP—like all RRSPs—is targeted to create retirement income. You can withdraw from RRSPs before then, but that money is taxed along with any other income you have for the year. Since no tax is withheld on the RRSP withdrawal, you may face a sizeable amount owing on your return. In the case of a spousal RRSP, however, your spouse's early withdrawal is added to your taxable income, not theirs. This presents a case where you face the risk of losing any tax advantages from the spousal plan. Early withdrawals include the current year and 3 preceding years.

For example: If you have contributed $1,000 to your spouse's RRSP for the past 10 years, and your spouse withdrew $6,000 this year, they will receive a T4RSP slip indicating the income amount, the tax deducted, the name of the contributor (which is you), and your Social Insurance Number (SIN).

Although you have only contributed $1,000 this year in the spousal RRSP, this year's and the prior 3 years' contributions add up to $4,000 which you will have to report as income.

The remaining $2,000 has matured beyond the 3 preceding years, so your spouse will have to claim it as income on their tax return.

Withdrawal exceptions for spousal RRSPs

There are some cases where you're not forced to claim your spouse's withdrawal as your income. These exceptions include:

• when your contributions were made more than 3 years before the current year
• when the withdrawal was made after a breakdown in the relationship between you and your spouse
• when you or your spouse aren't residents of Canada
• when the withdrawal is transferred directly to another retirement investment
• if the contributor dies in the year of the withdrawal

How can I open a spousal RRSP?

Opening a spousal RRSP is straightforward:

1. Choose a financial institution.

2. Provide your spouse's information, including their SIN.

3. Decide on your investment strategy and contribution frequency.

What happens to a spousal RRSP in case of divorce?

While the law doesn't require specific assets like spousal RRSPs to be divided in the event of divorce, it does allow for part or all of these accounts to be transferred tax free directly from one spouse to the other. This can happen if a judge orders it or if the couple agrees to it as part of the divorce settlement or written agreement.

After separation, spousal RRSP contributions can no longer be made and the spousal designation must be removed from the RRSP account. Divorcing individuals may withdraw money from their RRSPs without paying taxes on it, as long as the funds are used to buy a home and are paid back into the RRSP within 15 years. Think of it as a temporary loan to help you get a new place to live after a divorce, without having to take on extra debt.

Frequently asked questions about spousal RRSPs

What is the attribution rule for spousal RRSP withdrawal?

According to the attribution rule, spousal RRSP contributions cannot be withdrawn in the 3 calendar years following the year the contributions were made, otherwise, the contributor will be retroactively taxed.

When is the RRSP contribution deadline for 2024?

The RRSP contribution deadline for 2024 is March 3, 2025. Contributions made by this date can reduce taxable income for the 2024 tax year.

At what age can you withdraw from an RRSP without penalty?

Withdrawals can be made penalty free starting at age 71 when the RRSP is converted to a Registered Retirement Income Fund (RRIF). However, regular income tax still applies.

What happens if I make an early withdrawal?

Early withdrawals from a spousal RRSP may result in the funds being taxed as income for the contributor under the attribution rule. In addition, the RRSP early withdrawal penalty applies if funds are withdrawn outside of qualifying programs like the Home Buyers' Plan or Lifelong Learning Plan.

Who pays tax on spousal RRSP withdrawal?

Under normal circumstances, the annuitant (owner of the RRSP) pays taxes on withdrawals. However, the attribution rule may apply, shifting the tax liability to the contributor for withdrawals made within 3 years of contribution.

Can I contribute to my own spousal RRSP?

No, only your spouse can contribute to your spousal RRSP. However, they must stay within their personal RRSP contribution limit.

Can a personal RRSP be transferred to a spousal RRSP?

No, a personal RRSP cannot be transferred to a spousal RRSP. However, the contributor can make new contributions to a spousal RRSP, provided they have unused RRSP contribution room.

When can I withdraw money from a spousal RRSP?

Funds can be withdrawn anytime, but withdrawals before age 65 are taxed as income for the annuitant or, in some cases, for the contributor (see the attribution rule).

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