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The Value of Spousal RRSPs in Your Retirement Planning
Spousal RRSPs might not be the usual topic for a date night, but they can be a crucial part of a couple’s retirement strategy. This often overlooked financial tool can play a significant role in securing a financially stable future together.
What is a Spousal RRSP?
A spousal RRSP is a retirement savings account registered with the Government of Canada, designed for married or common-law couples to plan their retirement together.
How Does a Spousal RRSP Work?
A spousal RRSP functions similarly to a traditional RRSP but with a few key differences:
- One partner opens the account, known as the annuitant, and the other contributes to it. Typically, the partner in a lower tax bracket holds the spousal RRSP.
- The annuitant, who owns the account, controls the investments and withdrawals. Contributions made by the other partner reduce their taxable income.
- Both partners can contribute to their own RRSPs or a spousal RRSP, but the total contributions must stay within the annuitant's yearly RRSP limit.
Contribution Limits
The contribution limit for a spousal RRSP is the same as for a traditional RRSP: $30,780 or 18% of income from 2023, plus any unused contribution room. Contributions must adhere to the annuitant’s RRSP limit. Contributions can be made until the end of the year the spouse turns 71, if the spouse is younger.
Withdrawal Rules
Spousal RRSPs are subject to a three-year attribution rule. This means funds deposited into the account cannot be withdrawn until three years after the deposit. Withdrawals before this period will require the contributor to pay taxes on the withdrawn amount, which will be considered income for that year.
Drawbacks
- Withdrawal Limitations: The three-year rule restricts access to funds, making early withdrawals costly due to potential tax implications.
- Accessibility: Funds in a spousal RRSP are intended for retirement, limiting access except for specific programs like the Home Buyers' Plan and Lifelong Learning Plan.
- Relationship Changes: Trust is essential, as one partner controls the account. Changes in relationships, such as divorce, can affect the management and benefits of the spousal RRSP.
Incorporating spousal RRSPs into your retirement planning can enhance your financial strategy and provide mutual benefits.
