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If you have a spousal RSP it is the same as a regular RSP, except that your spouse, often referred to as the "contributing spouse" is typically the person making contributions to your plan.
When used correctly, spousal RSPs can be an effective tool in planning for a couple's retirement. To help you take advantage of this strategy, Scotiabank offers answers to a few important questions:
What is a spousal RSP?
A spousal RSP is an account into which one spouse makes contributions to the other spouse's RRSP who is in a lower tax bracket and the owner of the account. This means the owner spouse has control over the account in terms of investment decisions.
Why use a spousal RSP?
The main advantage of a spousal RSP is to help divide assets that will produce future income and thereby reduce the family's overall tax burden. Typically a couple with one wage earner is best suited for a Spousal RSP.
How does a spousal RSP work?
It separates the income between both spouses. Typically, the higher income spouse will contribute to a spousal RSP and receive a tax deduction at a high marginal tax rate. Then, in retirement or earlier, when the other spouse withdraws that money to produce income, it will generally result in a smaller income and be taxed at a lower tax rate.
What are attribution rules?
The Income Tax Act uses the attribution rule to prevent spouses from paying less tax than is prescribed. Any withdrawal within two calendar years after the year in which it was contributed will be taxed in the hands of the contributor and not the spouse.
Can I make contributions to my spouse's existing RSP?
The short answer is yes. However, as soon as you combine or co-mingle your spousal contributions with their regular contributions, the account is considered a spousal account and subject to the attribution rules. In this case, if a withdrawal is made from the account, it may be taxed in the hands of the contributing spouse.
Depending on your circumstances, it may be more appropriate to have two accounts so, if you need to make a withdrawal before retirement, you can make it from the account that makes most sense for tax purposes.
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