What is a significant financial advantage of contributing to a spousal RRSP?

The significant financial advantage of contributing to a spousal RRSP lies in the ability to achieve overall tax savings through income splitting in retirement. When one spouse earns a higher income than the other, they may be subject to a higher tax rate upon withdrawal of funds. By contributing to a spousal RRSP, the higher-income spouse can effectively allocate more savings to the lower-income spouse's account.

During retirement, when funds are withdrawn, the lower-income spouse is likely to be in a lower tax bracket, resulting in a reduced overall tax liability on the withdrawals. This strategy allows the couple to optimize their tax situation by balancing the taxable income between the two spouses, ultimately leading to an overall reduction in taxes paid during retirement. This income-splitting approach can enhance the longevity of their retirement savings and improve their financial well-being.