RRSPs (Registered Retirement Savings Plan) are an important account for securing your retirement savings and making them stress-free. A question that lingers in your mind might be “How to transfer RRSP to your spouse?” And what will happen to the assets in case the beneficiary passes away?
RRSP transfers are of various kinds and you can transfer them to accounts that are under your name, or to beneficiaries with some limitations attached to them.
So, let’s explore how to transfer RRSP to your spouse in this blog!
Is It Possible to Transfer RRSP to Your Spouse?
In a generic sense, it is not possible to transfer RRSP to your spouse or someone else without being mangled with tax formalities. In essence, you are required to withdraw funds and obliged to pay withholding taxes and the remaining amount you can transfer to your spouse.
If you mean to lessen your obligations for taxation by dividing the income with your partner, a spousal RRSP is a way to go!
In case you want to transfer RRSP to your spouse in matters of divorce or separation, there are some ways to achieve this without the need to pay taxes.
Transferring RRSP to Your Spouse Due to Separation or Divorce
In matters of divorce or separation, RRSP is deemed as matrimonial possessions. If RRSP faces the dilemma of being divided amongst the spouse, then CRA’s Form T2220 is used and funds are transferred on a tax-deferred basis.
You are not obliged to have more contribution room to acquire the RRSP, but here are the qualifications that you must meet:
- There should be clear proof of the divorce or separation between the 2 parties, for instance, a separation agreement or court order.
- The recipient and the contributor should not be living together.
- The funds should be moved between the RRSP accounts.
In case you have assigned a spouse as your beneficiary for the RRSP, you have the right to remove them, in case of divorce or separation.
If you don’t remove them, then they become the sole beneficiary of the funds, even when your latest will and testament are not mentioning this. You should also take into account the after-tax valuation of the asset/property. These taxes that you pay for the RRSP are applicable during equalization which reflects the real value.
What Does Spousal RRSP Imply?
Spousal RRSPs are registered plans for saving that give you the flexibility to also put in funds to your spouse’s RRSP account. You can act as the contributor of the account and your spouse will stay the annuitant, and they reserve the right to make withdrawals from their RRSP. Spousal RRSP works great for reducing the tax burden on the family.
A spousal RRSP has 2 main components, “Annuitant” and “contributor”. A contributor is a person who can add funds or contribute to the plan with their own contribution bracket. And they reap the benefits of enjoying tax deductions at the marginal tax rate.
“Annuitant” is the owner of the RRSP account, and has the right to withdraw funds from the RRSP, and pay taxes on the amounts taken out. Spousal RRSPs are great for when the spouses have income differences, and one earns more than the other.
For instance, Robert has a salary of $150,000 each year and Jenny earns $70,000. In 2022, Robert is allowed to contribute $27,000 (18% of his total salary) to his personal RRSP. While Jenny can make a contribution of $12,600.
If this income difference does not change in the coming years, then John will have to pay a lot of taxes for retirement because his RRSP and assets are more than Jenny’s. However, the couple can divide the income through spousal RRSP, hence, they can lower their tax obligations, and retain more money in savings or investments.
However, Robert will still have the benefit of having more tax refunds as their contributions by him are subtracted on a high marginal tax basis.
Additional Advantages When You Transfer RRSP to Your Spouse
- Couples are allowed to take out a max amount of $35,000 from the RRSP account if they want it for the Home Buyer’s Plan ($70,000 in total) and they can buy a house with the same. The spouse can withdraw this amount via spousal RRSP which was opened on behalf of them.
- RRSP is supposed to be collapsed, once you turn 71 years of age. However, you can still contribute to your spousal RRSP if the partner is still under the age of 71 and has contribution room. And you can enjoy tax deductions for the same.
Disadvantages of RRSP
- The RRSP contribution to a spouse’s account means the funds are in control of them, in case the relationship takes a U-turn, then you could face complications.
- Contributed funds should be retained at least until 3 years after contribution. If you fail to do this, you will have to pay income on it as a contributor (in case of divorce or separation, this attribution rule does not apply).
Before Signing Off
Just like transferring RRSP due to divorce or separation, there are other instances too where you can transfer RRSP without any tax repercussions immediately:
- RRSP Transfer Post-death: If your spouse is a beneficiary of an RRSP account, they can transfer the assets of your RRSP to theirs after your death.
If a person who has passed away still has the contribution room left, the spouse has the right to make a contribution to the spousal RRSP through their legal representative within the year of death or the initial sixty days following that year.
- RRSP to RDSP Transfer: The RRSP belonging to the person who has passed away can be transferred into an RDSP (Registered disability savings plan) that belongs to their grandchild or child.
- Retiring Allowance to Registered Retirement Savings Plan (RRSP) Transfer: You might be allowed to roll over retiring allowance on tax-deferred terms.
Hence, by sharing an RRSP, the spouses can reap many benefits if all the terms are kept in check. Retirement should be pre-planned in all aspects, and with RRSPs, you can have the financial freedom you want at any age. It gives tax benefits, as well as more contribution room for the partners.