Advertisement
Of all the issues regarding spousal RRSPs, perhaps the least understood are the rules regarding withdrawals
Rule #1: Only the planholder may take money out of a Spousal RRSP.
Rule #2: The tax on withdrawals from a spousal plan will be taxed in the planholder’s hands only if no contribution has been made to ANY spousal RRSP in the year of withdrawal or the two preceding calendar years.
If a contribution of any kind has been made during the year of withdrawal or the two preceding calendar years, anything contributed in that three-year window will be taxed in the contributor’s hands.
Use of the term “calendar year” is significant. Since the rule applies to the year of the withdrawal plus the two preceding calendar years, the timing of the contribution to a spousal RRSP is important. If, for example, you made a spousal contribution in September 2009 and no further contributions, the fund would be taxed in the planholder’s hands as early as January 2012. However, if you made the contribution in February 2010 the earliest you would be able to withdraw the funds without attribution would be January 2013.
If someone tells you the spousal rule is based on anything other than “calendar” years, they’re wrong. If they tell you that it’s okay to make your own contribution to your spousal plan because it’s all the same thing anyway, they’re wrong. And if, when you transfer assets from one institution to another, they try to co-mingle individual and spousal RRSP money, don’t let them.
The spousal attribution rules don’t apply:
• if the contributing spouse dies in the year of the withdrawal
• if you or your partner are non-residents when the funds are withdrawn
• if you and your partner are living separate and apart at the time of withdrawal because of a relationship breakdown, or
• if the spousal RRSP funds are:
– transferred to another spousal RRSP,
– transferred to a Registered Retirement Income Fund (RRIF) and only the minimum amount is withdrawn, or
– used to purchase a life annuity or term certain annuity to age 90 or registered pension plan, provided the plan can’t be commuted for three years.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out...
If you’re looking for a financial advisor or planner, learning about their credentials can help you choose the right...
Nvidia doubles revenue in one year, Canadian inflation moves in the wrong direction, Target misses badly, Walmart beats earnings...
Here’s how to get your free ticket to attend the MoneyShow virtual expo.
Nvidia beats earnings expectations as investors eye demand for Blackwell AI chips.
Nvidia is Wall Street’s most valuable company. How it got there, by the numbers.
The world’s biggest cryptocurrency topped USD$98,000 on Nov. 21. As it inches ever closer to six figures, investors wonder:...
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
Canada’s inflation rate rose to 2% last month, up from 1.6% in September, but a December interest-rate cut is...
Find the best GIC rates in Canada. Plus, everything you need to know about how they work.
Contributions extend the 3 year window. I get that. Do withdrawals during the 3 year window without any contributions extend the 3 year window? Withdrawal alone has zero impact on the 3 year window, correct? As the contributor I know that this withdrawal would be income to me in the year of withdrawal. Thank you.
Thanks for your question Bruce,
Due
to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected],
where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
When does a spousal rrsp have to be converted to s spousal rrif? In the year that the planholder turns 71 or in the year that the annuitant turns 71?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.