Do you have questions around your RRSP? What about retirement? Or savings in general? In our ‘Ask the Expert’ series, we invited our readers to send in questions. The questions are screened, and anonymised. Today, we are focused on general RRSP questions. Our expert today is John J. De Goey. He is a certified financial planner, and Portfolio Manager at Wellington-Altus Private Wealth.
Question: What’s a Spousal RRSP? Should I get one? Can I get one for a partner (we are not married)?
Answer: A spousal RRSP is an account where one spouse puts the money in (i.e. claims the tax deduction) and, provided the money stays in the account for three years or more, the other (lower income) spouse makes the withdrawal and pays the associated tax.
This was considered to be the primary vehicle for income splitting until 8 or 10 years ago when then- Finance Minister Jim Flaherty introduced legislation that allows for spousal income splitting in retirement (RRIFs).
Basically, the rationale for using a spousal RRSP has all but vanished as a result of legislative developments over the past decade or so. As a result, there is no need for anyone (either married or common law) to get one. You can achieve the identical result with less hassle by filing taxes appropriately down the road.
Question: I overcontributed to my RRSP. Now what?
Answer: You’re going to have to complete a T1-OVP form, which can be found here. Basically, CRA will be a little more lenient if you follow their procedures and use their forms as an admission of an honest mistake (hopefully that’s all this was). Note that you can overcontribute by up to $2,000 and not incur any penalties precisely because small, accidental overcontributions are not considered to be deliberately abusive by CRA. In those instances, there’s no tax deduction for the up to $2,000 over, but there’s no penalty, either.
Question: Can I take money out of my RRSP without a penalty?
Answer: Yes, under certain circumstances. Note that there’s a distinction between the words ‘penalty’ and ‘tax liability’. The ‘penalty’ in this case is really just the associated tax bill. If you take money out of an RRSP to buy a home for the first time or to help pay for an education, you can do so without having to pay tax on the withdrawal, provided that you repay the money within the timelines given – typically in minimum installments over 15 years.
Do you have a question you'd like to Ask an Expert? Email editor-canada@morningstar.com to have your question answered!
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