RRSP question: contribution made before wife's death | RRSPs and RRIFs | Discussion forum

I agree there is something missing here. Need clarity on whether this is wife's personal RRSP or a spousal RRSP in her name.

To add even more confusion which may no longer matter, one simply cannot give a spouse funds to contribute to their own RRSP and for them to take the deduction.

I don't see anything obvious that can be done now, after the funds have been transferred directly to your RRSP.

The obvious thing before that transfer is for her executor to collapse the $20,000 RRSP. That would add $20,000 taxable income to her estate. Her $20,000 of unused RRSP deductions could then be used to offset that taxable income. Estate would then give you the $20,000 tax free.

TJS96 said
I have a strange question that I am hoping someone can help me with. I deposited some funds into a RRSP for my wife at the end of 2019. In maximizing my tax savings there was some RRSP contributions that carried forward in the next tax year. In 2020 I added another $15,000 in RRSP contributions so now i have around $25,000 waiting to be offset against income for my wife. My wife employment is seasonal (in the summer) but before she could earn any income she died.

It took my financial advisor almost a year to transfer the RRSP funds to my account.
That was confusing why it took so long but that is not my question. My question is can I use the RRSP contribution already made to offset my income or will I pay income tax on it twice? Once when she earned it and then once when i take it out of my RRSP.  

Just wondering why you did not bring this question up with your financial advisor? If he cannot explain this situation regarding your RRSPs ,what are you paying him for?

Unfortunately the time to potentially unwind the contribution was in 2020. There may have been a mechanism to unwind that, but it would have had to be done within the window for RRSP 2020 contributions. That has long gone (even if stretched to end of Feb 2021 for the 2020 contribution year. I think you are screwed, particulaly now that the RRSP has also already been rolled over to you (I am assuming as a beneficiary or successor annuitant of her RRSP).

The CRA Guide, T4040, refers on page 18 to unused contributions. It deals with "unused contributions", it says in one place you might "be able to deduct an amount equal to the withdrawn contributions that you (i.e. your wife) include in your income......". Maybe you can amend/refile your wife's final return to get this deduction, if you qualify, I don't know.

I'm certainly no expert on this, but it might be worth reading this page in that Guide.

I am in my 70s and have not contributed to an RSP for several years.
My condolences on the loss of your wife, and possibly money as well.

This is certainly an odd situation.

I am wondering if your "financial advisor" is also the person who handles your investment accounts. It sounds like he is. Simply put, I think you should fire him. I know this is not the question you asked, but it is one I can answer. Three reasons: 1. he should have advised you to withdraw the money from that RSP before it was too late; 2. assuming he is also the investment guy, he has put his own interests ahead of yours, namely keeping the account as large as possible; 3. unexplained delay in transfer of RSP to your name. The latter may also reflect his need to keep the account as large as possible for as long as possible, but depends on the details of how the account is arranged, i.e. how he earns his money.
If he wants to keep your business, he needs to make you whole, and I would not hesitate to tell him that (and his boss if he has one). i know of at least one person who was able to successfully negotiate a reimbursement for really bad advice, and it was expensive!
Depending, again, on who exactly this person is and what his licensing is, there may be some regulatory agency to which you can appeal.

I too doubt if anything can be done about the account as it stands, and Norman1 and AltaRed are generally very knowledgeable about such matters, but, if only to satisfy your lingering doubts, I would call CRA and see if they have any useful advice for this situation, although it will be difficult to get through to them before April 30. You could also ask your lawyer. Of the people you have spoken to so far, the accountant is probably the most reliable.

If it's any comfort, there is an allowed RSP over-contribution, so you may not be double taxed on that much, but this may depend on when your wife died as to whether she would still qualify for it.

And bear in mind that if you have a bad year financially in future, it would be a good time to take some money out of the RSP. Unless you've done the math and can map out your entire financial future, don't assume this will cost you 80%. It would be the rare person who pays 40% on an average tax basis and the vast majority do not pay it eve on a marginal tax basis in retirement. It's not clear to me how your wife would be paying 40% in 2020 if she had no earned income.

You may find some useful information here: https://www.cpacanada.ca/en/news/canada/2020-02-19-rrsp-tfsa-over-contributions#:~:text=RRSP%20OVER%2DCONTRIBUTIONS-,The%20penalty%20for%20RRSP%20over%2Dcontributions%20is%201%20per%20cent,is%20to%20withdraw%20the%20amount.

I think the lesson for all concerned is not to contribute before you have established the room to do so.

TJS96 said
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My financial advisor does invest my money and there would be no difference in moving the RRSP and TFSA account to me because it would still remain under his umbrella. There is a $50.00 admin fee charged to each account at the beginning of the year but I hope that is not what cause the delay.

So, her RRSP and your RRSP are with the same advisor and presumably the same RRSP issuer. Can her RRSP be re-opened and the RRSP transfer be undone completely or partially through, how should we say, an "error correction"?

It would be great if her RRSP could be resurrected and $20,000 of the transfer be undone. Then, the $20,000 RRSP could be collapsed, her estate would be hit with $20,000 of taxable income, and her estate could then apply that unused $20,000 of RRSP contribution deductions.

Agreed, this is not an overcontribution situation, and as the funds have been transferred there is no longer an RRSP of the wife so I agree I don't see how an RRSP can be opened for a deceased person to "reverse" what happened. It is worth a call to CRA though, you never know, but at this point it appears a case of error by whoever was handling this.

It's probably not that common that a working-age person contributes to their RRSP early in a year and then dies before they've earned enough income that year to use the deduction, advisor probably better-versed on the routine stuff that happens on death of older, retired people. Can advisor be expected to be aware on a timely basis of this particular RRSP nuance in your case, I guess is the question.

To me it's kind of the executor's job, or whoever else prepares the related tax returns and does all the tax filing that has to be done (was that your advisor?), to bring this to involved persons' attention first. Hard to say if the advisor should have been the person to alert you, depends on how involved he was in your tax planning and filings I suppose. It seems like the transfer to your RRSP took a while so I'm not convinced he was trying to pull a fast one on you, your wife's RRSP was open long enough for whoever's job it was to figure out any implications.