You're ready to tackle your taxes, and that includes your spousal RRSP contributions! It can feel a little daunting, but with TurboTax, the process is designed to be as straightforward as possible. Let's walk through it together, step-by-step, to ensure you claim all the deductions you're entitled to and optimize your tax situation.
Understanding Spousal RRSPs: A Quick Refresher
Before we dive into TurboTax, let's briefly touch upon what a spousal RRSP is and why it's a fantastic tool for retirement planning. A spousal RRSP is an RRSP set up in your spouse or common-law partner's name, but you (the higher-earning spouse) make the contributions. The key benefit? You get the tax deduction for the contributions, reducing your taxable income. In retirement, withdrawals are taxed in your spouse's hands. This is a powerful income-splitting strategy, aiming to equalize retirement income between partners and potentially reduce the overall tax burden on your household in the future.
Now, let's get into the nitty-gritty of entering this in TurboTax!
Step 1: Gather Your Essential Documents (Engage!)
Alright, let's get started! Before you even open TurboTax, imagine you're a super-sleuth, gathering all the clues for your tax return. Do you have all your RRSP contribution receipts ready? Specifically, for your spousal RRSP contributions, you'll be looking for receipts issued in your name, even though the money went into your spouse's account. These receipts will typically be marked as "Spousal RRSP" or similar.
Here's your checklist of what you'll need:
RRSP Contribution Slips: These are usually T4RSP slips or specific RRSP contribution receipts from your financial institution. Make sure you have the slips for all contributions made during the tax year (March to December of the previous year) and also for the first 60 days of the current year that you wish to claim for the previous tax year.
Your Notice of Assessment (NOA) from the previous year: This document from the CRA shows your available RRSP deduction limit. You'll need this to ensure you don't over-contribute and to maximize your deduction.
Your spouse's personal information: While you're entering the contribution on your return, TurboTax might need to link it to your spouse's profile if you're preparing both returns together.
Step 2: Launch TurboTax and Navigate to the RRSP Section
With your documents in hand, it's time to fire up TurboTax!
Sub-heading: Logging In and Starting Your Return
Open TurboTax: Launch the TurboTax software on your computer or log in to your TurboTax online account.
Select Your Return: Choose to start a new return or continue with an existing one. If you're filing for both yourself and your spouse, ensure you've indicated that you're preparing a coupled return. This is crucial for TurboTax to correctly handle income splitting and optimize your family's tax situation.
Sub-heading: Finding the RRSP Input Area
Search Function: The easiest way to get to the correct section is often using the search bar within TurboTax. Type in "RRSP" or "Registered Retirement Savings Plan."
Navigate Manually: Alternatively, you can typically find the RRSP section under categories like "Income & Deductions," "Deductions and Credits," or "Investments." Look for an option related to "RRSP Contributions and Deduction."
Step 3: Entering Your RRSP Contribution Information
This is where you'll input the details from your contribution slips.
Sub-heading: Confirming Your Deduction Limit
Before entering contributions, TurboTax will likely prompt you to confirm your RRSP deduction limit.
TurboTax often has an "Auto-fill my return" feature that can import this directly from the CRA. If you've used this, it should be pre-filled.
Verify with your NOA: Always double-check the pre-filled amount against your latest Notice of Assessment to ensure accuracy. If you're entering manually, input the available deduction limit from your NOA.
Sub-heading: Inputting Your Spousal RRSP Contributions
This is the core step for spousal RRSP contributions.
Identify the Contribution Type: When prompted to enter your RRSP contributions, you'll typically see options for "Your RRSP contributions" and "Spousal RRSP contributions." Be sure to select the option for "Spousal RRSP contributions."
Enter Amounts from Receipts: Carefully enter the amounts from your spousal RRSP contribution receipts into the corresponding fields.
You'll likely have separate sections for contributions made in the previous calendar year (March to December) and contributions made in the first 60 days of the current year (that you want to claim for the previous tax year). Make sure to enter them in the correct boxes as per your receipts.
Pay close attention to the dates on your receipts. Financial institutions issue separate slips for these two periods.
Indicate Spousal Plan: TurboTax will usually ask you to confirm if the contribution was made to a spousal plan. Answer "Yes" to this question. This tells TurboTax that the deduction belongs to your return, while the potential future income stream will be attributed to your spouse.
Complete Related Questions: You may be asked additional questions about your contributions, such as if you participated in the Home Buyers' Plan (HBP) or Lifelong Learning Plan (LLP) and if these contributions are repayments. Answer these accurately.
Step 4: Reviewing Your RRSP Summary and Overall Return
Once you've entered all your contributions, TurboTax will compile a summary.
Sub-heading: Checking the RRSP Deduction
Verify the Deduction: Look at the RRSP deduction amount that TurboTax has calculated. It should reflect your total eligible contributions, up to your deduction limit. TurboTax is designed to optimize this for you, so it will typically claim the maximum allowable deduction.
Impact on Refund/Balance Owing: Notice how your overall refund or balance owing changes after entering your RRSP contributions. This is the immediate tax benefit you receive!
Sub-heading: Completing Your Spouse's Information (If Applicable)
If you're preparing a joint return, TurboTax will automatically link the spousal RRSP information to your spouse's profile behind the scenes. While the deduction is on your return, your spouse will be recognized as the annuitant (owner) of that RRSP.
Form T2205 Consideration: In some cases, if there are withdrawals from a spousal RRSP (especially within the attribution period – generally the year of contribution and the two subsequent years), a Form T2205 (Amounts from a Spousal or Common-law Partner RRSP or RRIF to Include in Income) might be required. TurboTax should generate this automatically if applicable. This form helps the CRA determine who reports the withdrawal income.
Step 5: Final Review and Filing
The final stretch!
Sub-heading: Comprehensive Review
Run a Diagnostic Review: TurboTax has built-in review tools. Run these to catch any potential errors, missing information, or opportunities for further optimization. Pay close attention to any warnings or suggestions related to your RRSP entries.
Review Your T1 General: Take a moment to review your full T1 General Income Tax and Benefit Return, specifically Line 20800 (RRSP deduction) to ensure it reflects your contributions.
Spousal Optimization: If you're filing jointly, TurboTax is excellent at optimizing deductions between spouses to maximize your combined refund. Ensure you're satisfied with the results.
Sub-heading: Submitting Your Return
NETFILE: Once you're confident everything is accurate, proceed to NETFILE your return directly to the CRA. TurboTax is NETFILE-certified.
Important Considerations for Spousal RRSPs
Contribution Room: Remember, your spousal RRSP contributions count towards your (the contributor's) RRSP contribution room, not your spouse's.
Attribution Rule: Be aware of the "attribution rule." If your spouse withdraws funds from the spousal RRSP in the year of contribution or in the two subsequent calendar years, the withdrawn amount (up to the amount of contributions made during that period) will be attributed back to you (the contributor) for tax purposes. This rule is designed to prevent immediate income splitting for short-term withdrawals. This rule generally does not apply to minimum withdrawals from a Registered Retirement Income Fund (RRIF) that was converted from a spousal RRSP.
Age Limit: You can contribute to a spousal RRSP up until December 31 of the year your spouse turns 71. This is different from your own RRSP, which matures when you turn 71. This allows for potentially longer tax-sheltered growth.
Frequently Asked Questions (FAQs)
Here are 10 common questions about spousal RRSPs and their quick answers:
How to know my RRSP deduction limit? Your RRSP deduction limit is found on your latest Notice of Assessment (NOA) from the CRA or by logging into your CRA My Account online.
How to avoid spousal RRSP attribution rules? To avoid the spousal RRSP attribution rule, your spouse should generally wait until the third calendar year after your last contribution to the spousal RRSP before making any withdrawals.
How to convert a spousal RRSP to a RRIF? A spousal RRSP must be converted to a Registered Retirement Income Fund (RRIF) by the end of the year your spouse (the annuitant) turns 71. This is typically done through your financial institution.
How to handle spousal RRSP withdrawals in TurboTax? If your spouse withdraws from their spousal RRSP and receives a T4RSP slip, they will enter this slip on their tax return. TurboTax will then automatically apply the attribution rule (if applicable) and determine who reports the income (you or your spouse) based on the T2205 form generated.
How to contribute to a spousal RRSP if my spouse has no income? Yes, you can contribute to a spousal RRSP even if your spouse has no income, as long as you (the contributor) have available RRSP contribution room. The deduction is claimed by you.
How to determine if a spousal RRSP is right for me? A spousal RRSP is generally beneficial if you anticipate that your income in retirement will be significantly higher than your spouse's, as it helps to equalize retirement income and potentially lower your combined tax burden.
How to deal with spousal RRSP over-contributions? If you over-contribute to a spousal RRSP by more than $2,000, you will incur a 1% per month penalty tax on the excess. You must file a T1-OVP form and may need to withdraw the excess to stop the penalty.
How to find my spousal RRSP contribution slips? Your financial institution (bank, brokerage) will issue RRSP contribution slips, usually by late January for the previous calendar year's contributions and by mid-March for the first 60 days of the current year.
How to report spousal RRSP contributions if I use Auto-fill my return? While Auto-fill my return can import your T4RSP slips, it's always best to manually confirm that the spousal RRSP contributions are correctly categorized within TurboTax and linked to the correct individual (you, the contributor, for the deduction).
How to ensure the tax benefits of a spousal RRSP are maximized? To maximize benefits, contribute consistently, ensure you claim the deduction on your (the higher-earning spouse's) return, and be mindful of the attribution rule for withdrawals in early years to avoid unintended tax consequences.
