# Spousal RRSPs and Income Splitting



## Mookie (Feb 29, 2012)

For many years, I've been contributing to a spousal RRSP because my income was quite a bit more than my wife's, and I also have a defined benefit pension through work. Now at age 43, I'm getting laid off, and thanks to many years of living below our means, we are considering (very) early retirement.

So now I'm going to have a gap in my income from age 43 to 55 where I will not yet be receiving any income from my pension (which I may cash out and put into a LIRA). 

We're planning to use this opportunity to start withdrawing our RRSPs while we have no other income so that we pay very little tax (we have other money outside of our RRSPs which we will also use to live off of). Unfortunately my RRSP is only about 1/4 the size of my wife's plus the spousal.

I know there is a 3 year attribution rule on the spousal RRSP. Am I allowed to intentionally withdraw from the spousal RRSP before the 3 year waiting period is up so that the income can be attributed back to me for the first few years at least? This would allow us to even out our RRSP income a bit more. If I do this, will I get in hot water with the taxman?


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## b_foot (Dec 16, 2010)

Please see http://www.cra-arc.gc.ca/E/pub/tg/t4040/t4040-e.html#P2404_78433 (scroll down to the example)

> Am I allowed to intentionally withdraw from the spousal RRSP before the 3 year waiting period is up so that the income can be attributed back to me for the first few years at least? 

I don't think the intent of the withdrawal matter much. It says any RRSP withdrawal (max at the total contribution you made in the last 3 years) has to be reported as your income. If in doubt, give CRA a call.


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## cardhu (May 26, 2009)

Yes, of course you can intentionally trigger the attribution rules, if you want to ... no risk of hot water whatsoever. 

If you’re being laid off, presumably you’re receiving a severance package ... you’re quite young, so you may not have been working for your employer long enough, but have you looked into whether you’d qualify to roll over a portion of your package (a.k.a. retiring allowance) into your RRSP? This is over and above any ordinary RRSP contribution room you might have had ... if you qualify, you might be able to close the gap a little between your RRSP and your wife’s. 

Assuming you also have TFSAs, avoid drawing from the TFSA’s for as long as you possibly can. These should not be used to fund ordinary day-to-day living expenses, if you have other alternates. Draw first from RRSP & non-reg before touching the TFSAs. In fact, ideally you would continue to contribute to TFSAs, either by shifting non-reg assets over, or by taking “extra” RRSP withdrawals (over and above your day-to-day living expenses).


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## Mookie (Feb 29, 2012)

cardhu said:


> Assuming you also have TFSAs, avoid drawing from the TFSA’s for as long as you possibly can. These should not be used to fund ordinary day-to-day living expenses, if you have other alternates. Draw first from RRSP & non-reg before touching the TFSAs. In fact, ideally you would continue to contribute to TFSAs, either by shifting non-reg assets over, or by taking “extra” RRSP withdrawals (over and above your day-to-day living expenses).


Yes, my plan is to do an RRSP melt-down between now and age 55. Each year I will take out a bit from my RRSP and my wife's. The only real problem is the imbalance in our RRSPs, which will mean that my wife will pay a bit more in taxes than I will, although it won't be that much. We will live off our non-registered dividend investment income, and shovel $5K per year each from non registered to TFSAs each to maximize our tax sheltering.


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## Brian Weatherdon CFP (Jan 18, 2011)

Hi Mookie,

You are lucky that indeed you can intentionally trigger the attribution rules by drawing income from your RRSP as you've mentioned. I believe you'll find the "tax-man" very friendly on this particular point 

BTW as it may help others to know....pension money that you commute to a locked-in retirement account (LIRA) would not be eligible for withdrawal until age 55 (except in case of great distress which doesn't sound to be your situation). 

Congratulations on being more prudent in your financial security than many households & indeed most developed nations!
Cheers!
BW


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