How Do I Best Manage My RRSP If I Have an RPP?

You may not be able to contribute to your own RRSP, depending on how much was contributed to your RPP.

You’ll need to understand what the PA, PSPA and PAR acronyms are if you want to understand how the RPP and the RRSP provisions interact, so you can maximize contributions to each.

• What’s the PA? When you contribute to a Registered Pension Plan, your RRSP contribution room for the year is reduced. The amount of the reduction is called a Pension Adjustment (PA). The amount of your pension adjustment is shown in Box 52 or your T4 slip. This will not affect your current-year RRSP contribution limit as it is based on your 2011 income but it will reduce your RRSP contribution room earned in 2012.
   

• What’s a PSPA? If you make past service RPP contributions, those contributions will also reduce your RRSP contribution room earned in the year. The reduction is called a Past Service Pension Adjustment (PSPA). You’ll receive a T215 slip showing the amount. This will affect your RRSP contribution room for the following year and will be reflected in your RRSP contribution limit as indicated on your Notice of Assessment. Most software does not include the T215 form as it does not affect the current year.

• What’s a PAR? In some cases, when you cease to be a member of a RPP and the benefits you receive from the plan are less than your accumulated pension adjustments, you’ll receive a Pension Adjustment Reversal (PAR). The PAR is reported on a T10 slip and increases your RRSP contribution room for the next year.

Becoming wealthier has as much to do with maximizing your take-home pay as it does with negotiating employment benefits to create a future income in retirement. In addition, your employment income level and your contributions to your employer-sponsored pension contributions will affect how much you can contribute to your privately funded RRSP. Tax-astute employees will make sure current and future needs are adequately met with the help of Registered Pension Plans.

Excerpted from Jacks on Tax. © Knowledge Bureau, Inc. All rights reserved.