How spousal RRSP withdrawals work

Avoid unexpected tax consequences by know how attribution works

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From the February/March 2015 issue of the magazine.

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Marty Patterson wants to know how spousal RRSP withdrawals work (Photograph by Jason Spun)

Marty Patterson wants to know how spousal RRSP withdrawals work (Photograph by Jason Spun)

Q: My wife and I are planning to retire within five years. I heard about a rule that requires you to stop contributing to your RRSP for three years prior to withdrawals in order to avoid a tax penalty. Is this true? And how does it work exactly?”—Marty Patterson Thunder Bay, Ont.

A: RRSP withdrawals are always taxable, unless you’re making a withdrawal under the Home Buyers’ Plan (HBP) to buy a home or the Lifelong Learning Plan (LLP) to go to school.

If you withdraw up to $5,000, there is 10% withholding tax. Withdrawals of $5,001 to $15,000 have 20% withheld. Thirty per cent tax applies to withdrawals over $15,000. RRSPs are then taxed on your tax return and tax withheld is credited accordingly, so it may ultimately result in a refund or balance owing.

If you make the minimum required withdrawal from a Registered Retirement Income Fund (RRIF), tax is not withheld at source, but it’s still taxable on your return.

The three-year restriction you are referring to applies to spousal RRSP withdrawals. If you contributed to a spousal RRSP for your wife in any of the previous three years and she makes a withdrawal this year, it’s taxed on your tax return instead of hers. This is called attribution—the withdrawal is attributed back to you, the contributor.

This may or may not be a problem for you, Marty. It’s not really a penalty, but you need to be aware of it so as to avoid unexpected tax consequences.

Jason Heath is a Certified Financial Planner (CFP) at Objective FinancialPartners Inc. in Toronto.



3 comments on “How spousal RRSP withdrawals work

  1. If you transfer the rrsp to a rrif, and you are 65y or older isn’t it only the “excess amount” that is attributable back to the contributor?


  2. Also, is it also correct, that if you contributed to a spousal rrsp within the last 3 years, and your spouse withdrew funds from another spousal rrsp deposit that is 10 years old let’s say, the withdrawal is attributed to your income and not your spouse’s, even though the actual withdrawal was made from a much older spousal withdrawal?


  3. A little clarity on this would be useful. If the last contribution one made was December 2012, The earliest it could be taken out is Jan 2015. HOWEVER, you can not contribute until the next year 2016. One thing I’m NOT clear about is whether you can start contributing in January 2016 again or have to wait until March 3, 2016 to start again.


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