Retirement & Pension

REGISTERED RETIREMENT SAVINGS PLAN (RRSP'S) 

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A Group RRSP Plan is an employer-sponsored retirement savings plan that is administered on a group basis by the employer. Contributions are made by payroll deduction and are often matched by the employer (typically to a maximum of 3-5% of earnings). It is registered with the Canada Revenue Agency and allows employees to save for their retirement on a tax-sheltered basis. 

 

HOW DOES AN RRSP WORK? SL

 

Any contributions into your RRSP can help you decrease your current taxable income. This means you won’t have to pay taxes on your contributions or any investment growth until you withdraw funds.

For most Canadians, withdrawing from your RRSP at a later point in life – in your 60s or 70s – means paying much less tax. Plus, you can hold a variety of investments in your RRSP, like:

• stocks,

• bonds, 

• segregated funds,

• GICs, and 

• mutual funds

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HOW DO I BENEFIT FROM AN RRSP? SL

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When you retire, you can use funds from your RRSP to cover any expenses, including:

• medical or health-related costs (e.g. prescription drugs, health insurance, etc.),

• where you’ll live,

• travel and vacation plans, 

• what hobbies you may take up and more.

 

Retirement can be a great time to focus on yourself and enjoy your leisurely years. But it also comes with a price. An RRSP can help you cover the costs that come with retirement.

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CONTRIBUTIONS, WITHDRAWALS AND TAXES SL

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You’re allowed to contribute up to 18% of your previous year's earned income, up to a maximum amount set each year by the Income Tax Act and Regulations. You can also carry forward any unused contribution room from previous years. RRSPs offer tax-deferred savings. This means you won’t have to pay tax on your investments and any income earned on those investments until you start withdrawing funds

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OTHER IMPORTANT INFORMATION SL

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You must move your money out of your RRSP by December 31 of the year you turn 71. After that, you can convert your savings to another registered account like a registered retirement income fund (RRIF), purchase an annuity, or withdraw your funds. 

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In general, at the time of death, the owner of the RRSP is deemed to have cashed out their RRSP assets.

However, let's say you've named your spouse as the beneficiary of your RRSP. In this case, your RRSP can be rolled over to your spouse after your death. This roll-over would be tax-deferred, meaning your spouse won't have to pay taxes until they withdraw funds. Keep in mind that your spouse does not require additional RRSP contribution room when the rollover happens.

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If your child is the beneficiary they will receive the full value of your RRSP funds. But the entire value of the RRSP will also be included as taxable income in the final tax return that will be filed when you die. Please note that generally, your estate is responsible for the associated tax liability. Speak to a lawyer or tax professional to better plan for your situation. 

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There is no way to transfer your RRSP account to someone else. You also can’t transfer money from your RRSP to someone else’s RRSP. 

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TAX FREE SAVINGS ACCOUNTS (TFSA’S)

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A Group Tax Free Savings Account offers employees a tax-free investment option to help grow their savings with no tax on withdrawal’s. Employees can use it for retirement savings, but also for big expenses like a new vehicle, vacations or home improvements. There is no requirement for an employer to contribute to the plan, but deductions can be taken from employee payroll. You can deposit $6,000/year. Interest accumulated by this account will not be taxed. 

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TFSA INVESTMENT OPTIONS

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A TFSA doesn’t have to be a savings account at a bank. You can use it to invest in:

• bonds, 

• stocks, 

• mutual funds, 

• segregated funds,

• insurance GICs/trust GICs and 

• exchange-traded funds.

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TFSA AND TAXES

 

Do you pay taxes on a TFSA?

 

Money deposited into a TFSA have already been taxed. That’s why you won’t need to pay tax when you make withdrawals in the future. Plus, you don’t pay tax on any income you earn in your TFSA.

 

For this reason, money in a TFSA is not tax deductible. For tax-deductible retirement savings, we recommend you check out a registered retirement savings plan (RRSP) from Sun Life.

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TFSA CONTRIBUTIONS

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The limit is $6,000 in 2021. But the amount you can save depends on your personal TFSA contribution room.

Your TFSA contribution room starts building up from the year you turn 18 or when the Government of Canada first introduced TFSAs, which was in 2009.* This means if you’ve never put money into a TFSA before, your contribution limit could be as much as $75,500 (in 2021).

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The best way to find out how much money you can contribute to your TFSA is through ‘My Account’ on the Canada Revenue Agency (CRA) website.

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*You can contribute to a TFSA only for the years you are a legal resident of Canada. The annual TFSA limit for 2021 is $6,000. The federal government may change the TFSA contribution limit from year to year. Although that limit increase has varied, it’s generally increased in line with inflation.

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TFSA LIMITS 

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If you've never contributed to a TFSA beforeThen you might be able to deposit a total of up to $75,500. Remember, any unused TFSA contribution room automatically rolls over from one year into the following year. You automatically carry forward unused contribution room to future years. Only if you’ve been a non-resident of Canada for an entire year - during which time you won’t have earned any contribution room.

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TFSA WITHDRAWALS

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You can usually withdraw any amount from your TFSA. It may take a few days to withdraw your money, depending on your investment. 

 

 

 

 

 

You can withdraw money whenever you want, for any purpose. However, you’ll want to check if the product (insurance GIC, trust GIC, segregated fund, mutual fund) you’ve invested in has any withdrawal restrictions or penalties prior to withdrawing funds.

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Just remember that the specific terms of the investments you hold in a TFSA could mean it’ll take a few days for you to receive your money.

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The amount you withdraw is added to your contribution room in the next year, in addition to the annual maximum. If you’ve carried unused contribution room forward from previous years, you may be able to add more than the annual maximum.

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Each time you deposit funds it counts as a contribution – no matter the total amount in the account. So lets say you deposit $1,000 and then withdraw it and deposit $1,000 again later in the same year. Then you’re considered to have contributed $2,000. It is possible to trigger an accidental over-contribution. Over-contributions may lead to tax penalties from the CRA. Making a transfer avoids that problem. An advisor can help you with this. Don't make more deposits in a calendar year than the annual limit, which is $6,000 in 2021. If you know you have additional room, however, you can add up to your maximum contribution limit

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RRIF - Registered Retirement Income Fund

 

A registered retirement income fund (RRIF) is a great way to use your registered retirement savings plan (RRSP) savings to generate a retirement income. It allows you to continue to have taxes deferred on your investment growth.

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You may know that you’re required to move your money out of your RRSP by December 31 of the year in which you turn 71. A RRIF is a good option for those who want to continue to control how they invest their savings, while drawing an income.

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A RRIF is one option that you can use to convert your RRSP savings to income. With RRSPs, you must choose one of three options by the end of the year you turn 71:

1. Convert your savings to a RRIF

2. Purchase an annuity

3. Withdraw the funds from your account

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A RRIF can hold various types of investments, including:

• Mutual funds,

• Segregated funds (GIFs),

• Insurance GICs (guaranteed insurance contracts),

• Guaranteed investment certificates (GICs), and

• Stocks and bonds.

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In many ways, a RRIF works like an RRSP in reverse. Instead of putting money in, you take income out. You do have to make a minimum withdrawal every year.

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A RRIF provides flexibility to take out the required minimum amount or more if you ever need extra cash. There’s no maximum withdrawal limit. Although withdrawals from your RRIF are taxable, the investments inside it continue to grow tax-deferred through retirement. In case of your death, your spouse or common-law partner can inherit the assets inside your RRIF – tax-free

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The tax-deferral* you enjoyed with your RRSP continues with your RRIF.  Plus, you’re more likely to be in a lower tax bracket in your retired years. This means you’ll pay less tax when you withdraw funds from a tax-deferred account like a RRIF. 

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*Tax deferral means you won’t pay tax on investments growing in an account until you take money out.

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RRIFs have minimum annual withdrawals based on you or your spouse’s age. You must continue to make these minimum withdrawals until no funds remain. Review the Canada Revenue Agency (CRA) table showing the minimum withdrawal factors for RRIFs. If you have a RRIF through Sun Life, we’ll help you calculate your minimum withdrawal dollar amount every year. As you draw down your savings, the rest of your money can keep growing in your RRIF, tax-free. 

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The CRA requires you to convert your RRSP to a RRIF no later than the end of the year in which you turn 71. You must start withdrawing money from your RRIF in the calendar year after you open it. For example, if you open a RRIF in 2022, you must start withdrawing from it at some point in 2023.

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If you don’t need it right away, there are ways to make the most of your required RRIF withdrawals. For example, after you’ve paid tax on your RRIF withdrawal, and if you have the contribution room, you can put the after-tax money into a tax-free savings account (TFSA). This way, it can continue to grow and be withdrawn tax-free when you choose.

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You could also put the after-tax money into non-registered investments. However, be prepared to pay tax every year on the non-registered account’s investment growth. 

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Your income needs might differ from the minimum withdrawals required by the CRA. Withdrawing too much on an annual basis could lead to outliving the savings in your RRIF. Withdraw too little, you might miss out on your retirement plans due to the fear of running out of money. We can help you create a retirement income plan and determine how much you should withdraw from your RRIF.

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You can fund your RRIF in several ways. Here are some of the most common: 

• By transferring money from your RRSP or from another RRIF you own.

• By transferring money from your spouse’s RRSP or RRIF at your spouse’s death, or if you separate or divorce from your spouse.

• From your employer’s deferred profit-sharing plan (DPSP). 

• From your spouse’s employer’s DPSP if your spouse has died, or you’ve separated or divorced.

• By transferring unlocked money from a pension plan.

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No one can own an RRSP after December 31 of the year they turn age 71. Legally, they must do something before that deadline, or risk having to take the money from their RRSP into income and pay tax on it all at once. By directly transferring their RRSP to a RRIF, they will defer tax. 

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LIF - Life Income Fund

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A life income fund (LIF) is a registered account designed to pay you income from your locked-in pension assets. These assets can’t be taken out all at once, since a LIF is meant to provide retirement income throughout your life. 

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Let’s say you’re a Canadian or someone living in Canada with a Canadian pension savings plan. You can transfer your pension into a locked-in income plan, such as a life income fund (LIF). Since the investments within a LIF are “locked-in,” you may not be able to withdraw money from them right away. Some provinces like Ontario, Nova Scotia, Newfoundland and Labrador allow you to start withdrawing money from a LIF only at age 55, whereas Alberta sets their minimum age for LIF withdrawal at 50. Meanwhile other provinces like Quebec, Manitoba and New Brunswick let you withdraw money from a LIF at any age. It’s important to note that some provinces, like Saskatchewan, don’t offer LIFs, but they do offer similar locked-in products. 

 

There’s also a minimum and maximum amount you’re allowed to withdraw from your LIF every year. These withdrawal amounts are set by the Canadian and provincial governments

 

You can choose what type of investments to hold in a LIF. Your options include (but aren’t limited to) the following: 

• mutual funds,

• segregated funds and 

• insurance GICs (*Insurance GICs are accumulation annuities issued by an insurance company.)

 

These investments will continue to grow tax-deferred once they’re within the LIF. This means you don’t have to pay taxes on those investments until you start withdrawing funds from your LIF. 

 

In many ways a LIF works like a registered retirement savings plan (RRSP) in reverse. Instead of putting money in, you take an income out. But remember, you can withdraw up to only a certain amount every year.

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Other important information below 

 

Some provinces let you withdraw LIF funds at any age, whereas others allow you to do so only at a specific age. Provinces like Quebec, Manitoba and New Brunswick let you withdraw LIF funds at any age. But provinces like Ontario, Nova Scotia and Newfoundland and Labrador won’t let you withdraw funds until you turn 55. Meanwhile, Alberta lets you start withdrawing funds at age 50.

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The Canadian and provincial governments set out the minimum and maximum withdrawal rates for LIFs. This means there’s a minimum amount of money you must withdraw starting the year after you transfer pension assets into a LIF.  There’s also a maximum amount that you can’t exceed.

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You pay taxes only on the amounts you withdraw from a LIF – but the investments you hold within a LIF are tax-deferred. This means you won’t have to pay taxes until you withdraw money from your account.

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You’re legally required to withdraw the minimum amount from your LIF every year. You can then move those additional funds into a tax-free savings account (TFSA) if you have the contribution room or you can move them into a non-registered account. You can also transfer those funds into your registered retirement savings plan (RRSP) if you’re under age 71 and have contribution room. 

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No, you can own a LIF even if you’re a non-resident of Canada

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The main difference between a LIF and a RRIF is that a LIF usually holds assets that were earned by participating in a pension plan. A LIF also has a maximum withdrawal rate that prevents you from spending the money too quickly. A RRIF, however, does not have any maximum withdrawal rate

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The main difference between an annuity and a LIF is that an annuity gives you a guaranteed retirement income, whereas a LIF pays you a retirement income from your locked-in assets that can change depending on how the market performs.

A LIF and an annuity, in combination, can be a helpful source of income for you during your retirement years.

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Your beneficiaries will receive the money remaining in your LIF. Most provinces require your spouse or common-law partner to be your beneficiary unless they give up this right. Some provinces will let your spouse, common-law partner or dependent child transfer your LIF funds into their own RRSP or RRIF.  If you don’t have a spouse, partner or children, then you can name a beneficiary to inherit the money in your LIF

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LIRA - Life Income Retirement Account

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A locked-in retirement account (LIRA) is a registered account designed to hold and invest pension assets that you and your former employers contributed to. Investments within the LIRA grow tax-deferred – this means you won’t have to pay taxes on investment growth until you withdraw funds. 

Assets within a LIRA are "locked in," which means you generally can't make any withdrawals until you reach a specific age (usually 55). The "locked in" provisions of a LIRA are meant to continue certain restrictions that applied to the assets when they were housed in your employer's pension plan. The specific "locked in" rules are determined by applicable provincial law. 

As an example, let’s say you have a pension plan with a Canadian employer. If you leave your job, you’d have to decide what to do with this pension. You usually have two options in this scenario – you can:

1. keep your pension assets where it is (if the plan allows it); or 

2. move your pension assets into a locked-in account like a LIRA. 

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HOW A LIRA PROTECTS YOUR PENSION

Since the funds within a LIRA are locked until you’re 55, you won’t be tempted to dip into your savings early. This allows you to keep more of your money for your retirement years.  Also, having a wide variety of investment options within a LIRA lets you diversify your investments so that they’re more likely to grow over time.

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WHEN CAN YOU TAKE MONEY OUT OF A LIRA

Most provinces let you unlock up to 50% of your LIRA at the age of 55. At this point, you can:

• withdraw your unlocked LIRA funds (though there will be tax consequences), 

• move your unlocked LIRA funds into a registered retirement savings account (RRSP), 

• use your unlocked LIRA funds to buy a life annuity. 

Any unlocked LIRA funds transferred into a RRSP or registered life annuity are tax-sheltered. This means you won’t be taxed when you move your funds over. 

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CAN YOU UNLOCK A LIRA EARLY

Yes, there are special exceptions that allow withdrawals before age 55.  These exceptions apply to you if you find yourself in one of these circumstances: 

• you’re facing financial hardships (such as being unable to make rent or mortgage payments or having a high amount of medical expenses), 

• you’re permanently leaving Canada,  

• you have a reduced life expectancy, or 

• you have a small amount of assets in your LIRA.  

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LIRA WITHDRAWAL RULES

Keep in mind that LIRA rules relating to withdrawals differ from province to province. Check your provincial government’s website to learn more about pension savings and locked-in accounts. Or, connect with an advisor for more detailed information.

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OTHER IMPORTANT QUESTIONS

A LIRA is designed for holding pension assets. You can transfer money earned while you participated in a former employer’s pension into a LIRA, but you can’t contribute new money.

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Most provinces let you begin withdrawing funds from a LIRA when you turn 55. But pension rules and regulations vary from province to province.

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Most provinces let you withdraw up to 50% of your LIRA if you’re age 55 or older. However, if you only have a small amount in your LIRA, you may withdraw all of it. This is subject to certain conditions. There are also some special conditions that allow you to withdraw from a LIRA before age 55.

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A LIRA is a tax-deferred account. This means you don’t have to pay tax as your assets grow within the LIRA. However, you’ll have to pay taxes on any withdrawals.

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You can own a LIRA even if you’re a non-resident of Canada – this is provided your earnings came from a Canadian employer.

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You can have a LIRA until Dec. 31 of the year in which you turn age 71. When this happens, you must transfer your LIRA funds into a life annuity or another locked-in retirement income account.

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The main difference between a LIRA and a registered retirement savings plan (RRSP) is that: 

• a LIRA holds pension money that you and your previous employers contributed to and it  allows for withdrawals when you’re at least 55 years old (this applies to most provinces). 

• an RRSP holds funds that you’ve contributed on your own and you can make RRSP withdrawals at any time. 

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Your beneficiaries will receive the money remaining in your LIRA. Most provinces require your spouse or common-law partner to be your beneficiary unless they give up this right. Some provinces will let your spouse, common-law partner or dependent child transfer your LIRA funds into their own RRSP or RRIF.  If you don’t have a spouse, partner or children, then you can name a beneficiary to inherit the money in your LIRA

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RPPP - Registered Private Pension Plan

Executive Compensation 

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DEFINED BENEFIT PENSION PLAN (DBPP)

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A defined benefit pension plan is a pension plan that guarantees employees a specific monthly benefit at retirement. It does not define the cost to the plan sponsor. The cost of the plan is determined by the amount employees contribute and the amount the investments earn. Any shortfall in the plan must be funded by the plan sponsor.

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The amount of the benefit is known in advance, usually based on factors such as age, earnings, and years of service. The employer has the obligation to make contributions necessary to fund the promised benefit. These contributions "vest" (become the property of) the employee after a certain period (two years in many provinces). An annual actuarial valuation of the assets and liabilities of the plan determines the required contributions by the employer. These contributions are supplemented by revenues gained through the investment of the plan assets. The employer bears the investment risk and normally the investments are made by professional money managers.

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Employees may or may not be required to contribute to the plan, depending on the plan's design. In some cases, employers set up a defined benefit plan for the employer contributions and a defined contribution pension plan, or a group RRSP. for the employee contributions. These plans are called "combination plans." The employer's contributions are a tax deductible expense and are not a taxable benefit to the plan member.

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The amount of retirement benefit may be defined by one of the following formulas

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CAREER AVERAGE EARNINGS

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A pension benefit formula that determines the benefit by multiplying a certain percentage (up to 2%) of the average earnings by the years of service (i.e. monthly pension = 1.5% x average monthly earnings x years of service).

For example, assume that the employee earned an average of $30,000 per year during his career. If the employee worked for 30 years for that employer and was a member of the pension plan for all of those 30 years, the benefit that this employee would receive at normal retirement age would be: $30,000 x 1.5% x 30 = $13,500 per year.

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FINAL EARNINGS

A pension benefit formula that determines the benefit by multiplying a certain percentage (up to 2%) of the final average or best average earnings for a stated period before retirement by the years of service (i.e. monthly pension = 2.0% x average monthly earnings of last 5 years x years of service).

For example, assume that the employee earned an average of $40,000 per year for the last five years. If the employee worked for 20 years for that employer and was a member of the pension plan for all of those 20 years, the benefit that this employee would receive at normal retirement age would be: $40,000 x 2% x 20 = $16,000 per year.

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FLAT BENEFIT 

A pension benefit formula that determines the benefit by multiplying a certain amount of benefit by the years of service (i.e. monthly pension = $50 monthly x years of service).

For example, assume that the employee worked for 25 years for the employer and was a member of the pension plan for all of those 25 years, the benefit that this employee would receive at normal retirement age would be: $50 x 25 = $1,250 per month.

The pension definition varies between employer plans. The benefits may be higher or lower than the above examples.

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FORMS OR PENSION

A normal form of pension must be specified in the pension plan. This generally includes a life annuity with a guarantee period (e.g., payments for life of the plan member for a minimum of 10 years). The majority of Pension Benefit Acts require that the pension be a joint and and last survivor pension that provides a pension for the life of the retiree and his/her spouse. These "acts" generally permit a reduction after the first death (within specified limits). If a joint and last survivor option is not chosen, both the member and spouse must sign a "Spouse's Waiver of Rights Under a Pension Plan" form.

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Advantages of a Defined Benefit Pension Plan:

• Benefit is known and guaranteed

• Time to invest is not as crucial a factor in determining the benefit for older employees

• Benefits for older employees may be higher than under a Defined Contribution Pension Plan

• Plan deficits must be funded solely by employer (advantage to employee)

• Contributions are tax deductible to the employer

• Contributions are not taxable to the plan member

• Employee contributions can be made by payroll deduction

• Past service benefits are possible

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Disadvantages of a Defined Benefit Pension Plan:

• Difficult to understand and communicate

• Generally no participation by employees in investment decisions

• Actuarial evaluations of plan required

• Costs to employer are difficult to predict

• Potential for problems with pension surplus and over funding

• Plan deficits must be funded by employer

• Higher administration costs

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DEFINED CONTRIBUTION PLANS (DCPP)

Under a Defined Contribution Pension Plan (also called a "Money Purchase" Pension Plan), the contributions of plan members and plan sponsors are invested towards the funding of a retirement income. The maximum combined contribution is the lesser of 18% of earned income to the maximum contribution limit. Typically, the contribution going into the plan is known, while the final benefit is not known. The employer's contributions are a tax deductible expense and are not a taxable benefit to the plan member.

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The amount of gross retirement income which a plan member will receive is based on:

• Future salary or wage levels and the resulting contributions made

• Investment selection

• Investment return

• Annuity and/or interest rates at the time the plan member retires

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Employer contributions are credited to the account of the employee, but are kept separate from employee contributions for investment purposes. The employer's contributions generally "vest" with the employee after a period of time (two years in many provinces). In other words, after a certain period of time, the employee obtains the right to the employer's contribution. Employers can allow employees to make the investment decisions for the employer contributions, or the decision may be left to the employer. Employees usually make the investment decisions for their own contributions. The investment options available to the employee are generally determined by the employer.

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There is a considerable choice of investment options. These typically include:

• Guaranteed investment funds

• Canadian bond funds

• Canadian balanced funds

• Canadian equity funds

• International and/or global equity funds

• Segregated funds

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FORMS OF PENSION

At retirement, the plan member has the option of purchasing a Life Annuity, a Life Income Fund (LIF), or a Locked-In Retirement Income Fund (LRIF). The life annuity can be purchased with a guarantee period (e.g. payments for the life of the plan member with payments guaranteed for a minimum of 15 years) or on a joint and last survivor basis which provides benefits for both the life of the plan member and his or her spouse. In the later case, the payments can be set to continue at the same level after the plan member's death or they can be reduced after the death. If a joint and last survivor option is not chosen, both the plan member and spouse must sign a "Spouse's Waiver of Rights Under a Pension Plan" form.

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A LIF is very similar to a RRIF (Registered Retirement Income Fund). A LIF has some advantages over a life annuity. In particular, it allows for more flexible payment schedules and control over investment choices. A LIF must be converted to a life annuity by age 80.

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An LRIF is similar to a LIF but has greater flexibility in withdrawing funds as it is subject to a different maximum payout formula. With an LRIF, there is no mandatory conversion to a life annuity.

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Advantages of a Defined Contribution Pension Plan:

• Employee contributions by payroll deduction

• Easy to understand and communicate

• Employees can participate in investment decisions

• Actuarial calculations of funding not required

• Few problems with pensions surplus or over funding

• Contributions are tax deductible to the employer

• Contributions are not taxable to the plan member

• Employer costs are easier to predict (as compared to a Defined Benefit Pension Plan)

Disadvantages of a Defined Contribution Pension Plan:

• Benefit is not guaranteed

• Investment time is a crucial factor in determining benefit for older employees

• Benefit of older employees may be lower than under a Defined Benefit Pension Plan

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DEFERRES PROFIT SHARING PLAN

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A Deferred Profit Sharing Plan (DPSP) is an arrangement similar to a Defined Contribution Pension Plan (DCPP) whereby an employer distributes a portion of pre-tax profits to selected employees. The pension amount is not known in advance and is determined by the amount of contributions, investment returns and annuity and interest rates at the plan member's retirement. In contrast to a DCPP, plan members cannot make contributions and the employer's contribution is dependent on company profits. Employers may contribute an amount no greater than 9% of the employee's earnings for the current calendar year to the maximum contribution limit (half of the Registered Pension Plan maximum). The employer's contributions are a tax deductible expense and are not a taxable benefit to the plan member.

The investment choices are basically the same as for a Defined Contribution Pension Plan and typically include:

• Guaranteed investment funds

• Canadian bond funds

• Canadian balanced funds

• Canadian equity funds

• International and/or global equity funds

• Segregated Funds

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FORMS OF PENSION

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At retirement, the plan member has the option of purchasing a life annuity or a Registered Retirement Income Fund (RRIF). The life annuity can be purchased with a guarantee period (e.g. payments for the life of the plan member with payments guaranteed for a minimum of 15 years) or on a joint and last survivor basis which provides benefits for both the life of the plan member and his or her spouse. In the later case, the payments can be set to continue at the same level after the plan member's death or they can be reduced after the death. If a joint and last survivor option is not chosen, both the plan member and spouse must sign a "Spouse's Waiver of Rights Under a Pension Plan" form.

A RRIF has some advantages over a life annuity. In particular, it allows for more flexible payment schedules and control over investment choices. The income received each year is taxable, while the balance remains tax-sheltered. Revenue Canada has established the minimum income level that must be received each year based on a percentage of RRIF assets. Other than this minimum requirement, the level of income is completely flexible. In contrast to a LIF/LRIF, there is no maximum income and the plan can continue beyond age 80.

Advantages of a Deferred Profit Sharing Plan:

• Easy to communicate and administer;

• Contributions are tax deductible to the employer;

• Contributions are not taxable to the plan member;

• Employer contributions are not subject to EI and CPP/QPP deductions;

• Tax deferred returns on investments;

• Fewer problems over future funding, over-funding, or plan surplus;

• Provides plan members a direct interest in company profitability;

• Employer expenses are reduced when the company is not profitable.

Disadvantages of a Deferred Profit Sharing Plan:

• Employee contributions not permitted;

• Contributions or plan can be cancelled at any time by employer; (disadvantage to employee);

• Contributions by employer are unpredictable:

• Benefit is not guaranteed;

• Benefit for older employees may be smaller as compared to a Defined Benefit Plan due to reduced investment time.

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