Teamwork | Do not take too much

Teamwork | Do not take too much


I have just received an email from my employer who informs me that I am responsible for making sure not to pay excess contributions to my RRSP, at the risk of paying tax penalties. What should I do to make sure not to contribute too much to my RRSP given the pension plan offered by my employer? – Luke


I want to greet your employer first for having brought this notion to your attention. This is an excellent practice in financial health than to verify the condition of its contributions during this period of the year. Indeed, the deadline to contribute to your registered retirement savings plans (RRSP) and benefit from a deduction on your 2024 income is March 3, 2025. This time of the year thus naturally carries to think about its retirement savings.

Recall that the contributions to an RRSP are deductible from taxable income, which reduces the tax bill. The gains made in an RRSP (interests, dividends, etc.) are immune to the tax as long as they remain in the account.

RRSPs and employers’ pension plans are two important tools to prepare for your retirement. However, as your employer has mentioned, you are responsible for managing your contributions well to avoid overruns and undergo tax penalties. Be fearlessly, with some simple knowledge, you will get there easily.

The value of his employer’s pension plan

It is important to know that participating in a pension plan has an impact on the overall amount you can pay to your RRSP each year. As a reminder, here is a brief description of the three main types of regimes offered in business.

– Determined benefits regime (PD): With this type of scheme, the employer undertakes to pay a fixed rent to the retired employee, it is the services that are determined. These are generally based on salary and years of service, among other things.

– Determined contributions regime (CD): A CD regime, on the other hand, is a regime where the employer and the employee pay contributions according to a percentage of the salary, it is the contributions that are determined. Thus, the amount available to retirement will depend on the total amount of contributions paid as well as the yields of investments during the employee’s career.

– Collective RRSP: A collective RRSP is simply an individual RRSP group offered by the employer, giving access to more advantageous management fees than those of your personal RRSP.

Make sure you maximize your employer’s counterpart contributions before contributing to a personal RRSP. These contributions are an additional amount paid to your pension plan by your employer according to your own contributions. For example, if your employer adds 50 cents for each dollar that you contribute, then paying 4 % of your salary, it will contribute 2 % more. It is an immediate return on investment of 50 %!

Know your total RRSP space

Your total RRSP space (also called “rights or subscription limit”) is the maximum amount you can pay during a given year without undergoing tax penalties. It includes an amount equal to 18 % of your income from the previous year, up to the annual ceiling, the balance of your unused contributions from past years, as well as the contribution rights deducted from your RRSP space due to Your participation in your employer’s pension plan.

Indeed, when your employer contributes to a pension plan for you, your annual RRSP of the following year will be reduced according to the value of these contributions. This reduction, called a “equivalence factor”, represents the value of the retirement services you have accumulated during the year. This equivalence factor appears annually on your T4 sheet and statement 1 and ensures a certain tax equity vis-à-vis taxpayers who do not have access to a pension plan.

To simplify your life and avoid errors that could be expensive, you will find the amount of your RRSP space on your contribution notice, which is sent by the Canada Revenue Agency (ARC) after each income declaration or Online on the Arc my file platform.

In case of exceeding

If you go beyond your RRSP space, you will be subject to tax penalties. For each dollar in excess contribution, you will have to pay a penalty of 1 % per month, until you remove the excess. It is therefore crucial to monitor your contributions and stay under your limit.

Be aware, however, that you normally have an excess $ 2,000 margin before the penalties apply. Contact your financial institution all the same as soon as you notice that you have exceeded your subscription limit.

To avoid contributing too much, it is possible to set up automatic mechanisms. For example, you can configure your preferences with your financial institution so that your contributions automatically stop when you reach your RRSE limit of the year (often possible on the online portal).

Are you Luc’s employer?

According to a diagnostic survey of 2024 on the well-being carried out by Willis Towers Watson (WTW) in Canada, only 19 % of Canadian employers effectively support the financial well-being of their employees.

Financial security is a key element in the general well-being of employees. It can reduce the issues related to absenteeism and presenteeism as well as improve performance at work. By offering solid retirement programs and supporting employees in their financial decisions, employers can create a healthier and more productive working environment.

An effective way to support employees is to offer workshops, seminars and online resources to help them better understand the type of pension plan offered and make informed participation decisions. Employers can also promote the tools offered by their insurer.

Luke, although this verification may seem a little complex, your pension plan is a very precious advantage. By working together, employees and employers can create a safer and more prosperous financial future.



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