Your wife’s spousal RRSP is hers. While you received the income deductions for making contributions to the plan, she owns it and will generally be required to claim the spousal RRSP withdrawals as income.
What to do with a spousal RRSP at age 71
By the end of the year you turn 71, an RRSP annuitant is no longer allowed to own RRSPs—personal or otherwise, including spousal. That means your wife will have to decide what she wants to do with it. She has three options:
With an eligible annuity, you exchange a lump sum amount for a guaranteed stream of income for life. This can be a compelling strategy for the right individual, though in my experience, the psychological challenge of converting a balance sheet item into a cash flow item prevents most Canadians from pursuing it.
Withdrawing the RRSP in cash is rarely the optimal choice, except for very specific circumstances and when the RRSP balance is relatively small. Since the full value of the RRSP withdrawal is taxed in the year it is received, it’s not often the right strategy.
Most Canadians choose to convert a spousal RRSP to a spousal RRIF. If your wife decides to go this route, she must make a minimum annual withdrawal based on her age–much like when you converted your personal RRSP into an RRIF.
That withdrawal must begin the calendar year after the spousal RRSP is converted to a spousal RRIF, at which point the minimum withdrawal is 5.40% of the spousal RRIF balance at the beginning of the year. That amount is taxable to her, though it qualifies as eligible pension income. That means, if it’s beneficial to do so, she can allocate up to 50% of that spousal RRIF income to you and have it taxed in your hands.
Attribution rules for spousal RRSPs and spousal RRIFs
There is one key difference between personal RRSPs and spousal RRSPs that you should be aware of—income attribution.
Usually, when a withdraw is made from a spousal RRSP, any amount up to the amounts contributed in the current year, or the previous two years, will be attributed back to the contributor. This prevents folks from making a spousal RRSP contribution and having their spouse withdraw it shortly after, creating an income-splitting loophole. Requiring those contributions to vest over a certain period ensures that the right person pays tax on income.