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What's a Spousal RRIF?

Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Like a spousal RRSP, a spousal RRIF is used to invest money tax-free during retirement. Unlike an RRSP, it’s not used to accumulate money but rather to provide income.

Part of the reason spousal RRIFs exist is that regulations stipulate that you can’t have an RRSP after you’re 71. You must convert your RRSP into either an annuity or a spousal RRIF.

What are the pros? Converting a spousal RRSP to a spousal RRIF means you’re not cashing out the account in its entirety, which means you’re avoiding an enormous tax bill. Plus, just as with an RRSP, any gains your investments make in a spousal RRIF are tax-free (though they’re still subject to income tax at withdrawal).

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The biggest thing to watch out for with spousal RRIFs is something called attribution. When a person contributes to his spouse’s RRSP, he receives a tax benefit, and there’s the assumption that the same spouse will withdraw the money at a lower tax rate many years into the future. The Three Year Attribution Rule applies when the money is taken out too early and the government thinks that the spouses are in cahoots to use this retirement-planning tool as a way to lower their tax bill instead of saving for retirement.

Let’s say you earned $100,000 this year and your spouse earned $5,000. You contribute $10,000 to her RRSP and take the tax deduction. Next year, your spouse decides to withdraw the $10,000 RRSP contribution. Because it’s been less than three years since money was contributed to the RRSP, the $10,000 is added not to your spouse’s income but to yours since it is essentially the income you weren’t taxed on when you made the contribution. In this case, you would have to pay income tax on $110,000.

You don’t need to get bogged down in details, though. Just remember to withdraw only the minimum amount required from a spousal RRIF for the first three years after the last spousal RRSP contribution.

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Last Updated August 21, 2018

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