Retirement Planning Flashcards
Unvested DC Plan Monies Returned
Your contributions + Your Interest + Employer Interest
RRSP Earned Income
- Net income from employment
- Net income from business
- Net Rental from RE
- CPP Plan
- Spousal Support
RRSP Limit
2021 RRSP Limit $27,830
2020 “ “ $27,230
2019 “ “ $26,500
RRSP Contribution Calculation
- 2021 RRSP Limit $27,830
- Calc 18% of earned income (previous yr.)
- Use Lower of 1 or 2
- Less** any PA (**previous yr.)
- Less** any PSPA (**current yr.)
- Add** and PAR (**current yr.)
- Equals current year’s RRSP contr. limit.
- Add unused RRSP contr. room all previous yrs.
- Equals total RRSP contribution limit.
- Add $2000 lifetime allowable over-contribution.
- Equals maximum allowable contribution limit.
Retirement Allowance Rollover Rules
Before ‘96, # yrs of service x $2000 +
Before ‘89, # yrs unvested x $1500 = RRSP rollover
RRSP Earned Income Deductions
- Losses from Business
- Deductible spousal support paid
Pension Adjustment Calculation
First Calculate benefit of DB plan
average or best yrs or final income x 2% = Benefit
Pension Adjustment or PA = (9x Benefit) -600
Annuity Income to include in Income
months of income x interest received x monthly income received
DPSP Rules
- May withdraw vested DPSP in cash
- Not a formal DPP
- Only Employer can contribute
- Based on profits to a Max 18% or Max $27,830
- Savings sheltered until withdrawn
- When retiring may: receive a lump sum in cash, transfer funds to RRSP or RRIF, use funds to purchase an annuity
Individual Pension Plan (IPP)
- is a defined benefit plan, contributions actuarially determined
- IPP contributions could exceed the RRSP contribution limit
- contributions will not vary with corporate earnings
- does not need to have more than one member.
Spousal RRSP
- Contributions are deducted to the contributing spouse
- If the spouse uses the RRSP assets to purchase an annuity of RRIF…then no Attr.
- a spousal contribution will not affect the spouse’s personal contribution room
- attr rule affects funds contributed this year and the 2 previous yrs.
Yearly Maximum Pensionable Earnings (YMPE)
- as defined under the Canada Pension Plan
- for 2021 YMPE is $61,600
- for 2020 YMPE was $58,700
Unreduced Pension
- Earliest age without reduction = (age joined the plan + Qualifying Factor / 2
Money Purchase Plan (MPP) or DC Plan
- Contributions to MPP by employees reduce their taxable income directly
- An employer can deduct their contributions
- Payment is taxable to the employee
- Funds inside the MPP grow tax-free, however, funds paid out are considered taxable income to the plan member
Strip Bond Interest Calc?
Semi-annual discounting is used
Attribution of a spousal RRIF
- if within the 3 yrs then attribution applies to anything above the RRIF Min
Receive Shares DPSP
- if leaving the company then can take the shares and report the cost as a taxable benefit
- then make a contribution to his RRSP within 60 days after the end of the year received…this will offset the taxable benefit
- can also transfer the shares directly to his RRSP, DPSP or RPP at FMV.
DC Plan Features
- DC plans appeal to smaller companies as contributions are fixed…usually as a % of income.
- level of benefits is dependent on investment results and max pension is unpredictable
- Max pension amount $3245.56 only applies to DB pensions
- Accumulated amounts to a LIRA if leave the plan
- No inflation protection under a DC Plan
- If leaving a DC or DB plan…transfer to a LIRA or LIF or Deferred Life Annuity, or to another pension plan
GIS and Allowance
- both are reported as part of total income
- BUT amounts are deducted in the calc of taxable income…so effectively exempt from tax
Is U.S. source income earned by a non-resident taxed?
- Does not form part of earned income
- What is…
Employee profit-sharing allocations
Taxable alimony receipts
Net Rental Income
Canadian source employment income while a non-resident
RRSP to RRIF specifics
- If you contribute to the RRSP before it’s a RRIF, you don’t have 60 extra days like other years.
- Can’t contribute to a RRIF
- excess contributions subject to a 1% monthly penalty
CPP Orphan Benefit rules?
- Must be enrolled in school full-time and be 19 or under
- if enrolled would qualify until finished or reached 25 yrs
Pension Calculations and the PA
- Is an estimation of the value of an individual’s pension
- the PA is the amount an RRSPs member can contribute annually
- PA ensures that all taxpayers have access to comparable tax assistance
- for DC Plan…employer and employee contributions
- for DB Plan PA = (9 x Annual accrual benefit) - $600
- annual accrual benefit formula…find first…PB = factor x avg. salary x #yrs
- PA = (9 x (factor x avg. salary x #yrs) - $600… combined to one formula
DPSP and payout to employees or survivors
- Amounts vested are payable no later than the end of the year the employee attains 71 years of age and 90 days after the earliest of:
- the death of the employe
- day ceases to be employed
- the termination or winding up of the plan