Maximizing spousal RRSP contributions in your 70s


Q. My wife will turn 71 in 2022. She has three spousal RRSPs that we will arrange to mature on the same day: Feb. 8, 2022. On that day, we will convert all the RRSPs into a RRIF.

Between now and then, I wish to take full advantage of my ability to continue making contributions to spousal RRSPs. I am 71, and still earn a modest income (less than $10,000 a year) from a government board appointment.

Question 1: Would it be possible for me to make a spousal contribution on, say, Feb. 8, 2022, and convert to a RRIF on Feb. 9, 2022?

Question 2: Although my RRSP room is based on the previous year’s income, I will know in February 2022 what my 2021 earnings were, even though my contribution room will not have been adjusted by that date. Can I make a contribution based on what I know what my earnings were in 2021 (that is, 18% of $10,000), even though my “room” does not include them?
–Don

A. There is a lot to unpack here, Don, so I will start by answering your two questions briefly, and then elaborating. 

Answer 1: You can contribute to a spousal Registered Retirement Savings Plan (RRSP) until Dec. 31 of the calendar year your spouse turns 72, regardless of your own age. So, if your wife turns 71 in 2022, that gives you until Dec. 31, 2022, to make your final spousal RRSP contribution, subject to your available RRSP contribution room.

Answer 2: When you file your tax return in April 2022, 18% of your 2021 earned income will result in 2022 RRSP room. If you have $10,000 of board income in 2021, that should result in $1,800 of RRSP room. Your 2022 RRSP room becomes available retroactive to January 1, 2022, even though you may not file your tax return until April 2022. As a result, Don, yes, you could estimate your RRSP room and contribute in February. 

Now, I will elaborate. 

You mention that your wife has three spousal RRSP accounts. I suppose you could have three accounts at three different institutions, and there may be good reasons for the three accounts. But why not consolidate them in one place, in one account, for simplicity? 

When a spousal RRSP is converted to a registered retirement income fund (RRIF), it remains a spousal account. Interestingly, even when two RRSPs or RRIFs are consolidated, if only one is a spousal account initially, the resulting combined account must be a spousal account. 

Spousal RRIFs can be subject to income attribution. So, if your wife takes a spousal RRIF withdrawal, the income may be attributed back to you as the contributing spouse. This may not be desirable. RRIF withdrawals are subject to minimums based on a percentage of the account value and the account holder’s age. If your wife takes the minimum RRIF withdrawal for the year, there is no concern about attribution. However, if she takes an excess withdrawal above the minimum, attribution back to you may apply. 

Attribution applies only if there were contributions made in the current year or in the two previous years. So, keep that in mind when your wife is taking withdrawals, Don. Also, you cannot contribute to one spousal RRSP and then then withdraw from a different spousal RRIF to avoid attribution—the accounts are all considered a single account. 

I should point out that you do not need to worry about making your RRSP contribution on the same day the investments (presumably bonds or guaranteed investment certificates) mature. You can contribute in January 2022, and leave the funds in cash, then convert the RRSPs to RRIFs later. You could even reinvest the maturities on Feb. 8, 2022, and then convert the RRSPs to RRIFs later in the year. When investments are held in an RRSP and you convert the account to a RRIF, the investments can be transferred “in kind” between the accounts. You do not need to make sure the account is in cash before converting it to a RRIF. 

To ensure I’m providing the answers you need, I need to ask a few more questions about your RRSP contribution strategy, Don. Why bother contributing $1,800 to your wife’s spousal RRSP? Is your income so high that it is advantageous? RRSP contributions are generally beneficial when your income is high, especially if you expect it to be lower in retirement. Given your working years and retirement years are colliding given your age, you should have a reasonable sense of what your income is going to look like in your 70s. RRSP contributions are not something to make at all costs—sometimes, they are not advisable. 

When you are in your 50s or 60s, I think it is important to estimate what your income will be in your 70s and 80s. Sometimes, RRSP/RRIF withdrawals are more beneficial than RRSP contributions. If one spouse in a couple dies at a young age, the survivor may have a much higher income in their retirement and pay a lot more tax, defeating the benefit of RRSP contributions at some income levels. On the death of the second spouse, a large RRSP/RRIF balance can trigger tax of over 50%, significantly depleting an estate. The point is that RRSP contributions or RRSP/RRIF tax deferral can be overrated. 

Another consideration is that when you start to take withdrawals from your own RRSP once it is converted to a RRIF, up to 50% of that income can be allocated to your wife using pension income splitting. RRIF withdrawals are eligible pension income allowed to be split with a spouse or common-law partner, and taxed on the partner’s tax return. 

Thanks for your questions, Don. The answers were brief but, as is often the case, there is plenty more to consider. That is one of the trickiest parts about financial advice—there are not a lot of yes or no answers. 

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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