Having a spousal RRSP is a great way to split income and reduce taxes by contributing to an RRSP in the name of the spouse with a lower marginal tax rate and claiming a tax deduction for the contribution at their higher marginal tax rate.

Example: Joe Smith has a maximum RRSP contribution limit of $15,000. He decides to contribute $10,000 to his own individual RRSP and $5,000 to a spousal RRSP. Joe's total RRSP tax deduction would still be $15,000. Joe's wife could also contribute to her own individual plan up to her allowable limit, and defer even more taxable income for the household.

Spousal RRSPs are a benefit for couples who plan on retiring before age 65 and will be relying on their RRSPS for income.

To continue from the example used above, Joe Smith has earned more than his wife over the years and has a much larger RRSP. They plan to retire in 10 years and use their RRSPs as income. Joe will receive more money in retirement than his wife and therefore, will pay much higher taxes. To equalize their retirement income, Joe decides to contribute to a spousal RRSP that his wife can withdraw from in retirement. This will allow the household to pay lower taxes at retirement than if Joe keeps contributing money to his own RRSP.

Bottom line, a spousal RRSP is a great way to lower the household marginal tax rate to create optimal retirement savings. Upon retirement, you and your spouse will be able to withdraw from your retirement savings, and be taxed at a lower rate, because of the efficient use of a spousal RRSP in the years before retirement.