- Tax-sheltered growth. Contributions to a DPSP are made from company
profits which your employer shares with you. There may be years when no
contributions are made, so DPSPs should not be relied upon as a sole source
of your retirement income. However, the contributions are made only by
the employer and grow in a tax-sheltered environment until withdrawn.
- Vested but not locked-in. After your employer's contributions are
vested, usually after two years of membership, the contributions are not locked-in. Depending on the plan design, you may be able to withdraw these
funds any time after the vesting period subject to federal withholding
taxes.
- Additional RRSP contributions. With DPSPs, you can still make contributions
to your RRSP up to the maximum allowable limit. However, remember that
contributions made by your employer this year will reduce your RRSP contribution
room for the following year. No contribution receipt will be issued to
reduce your taxable income. A Pension Adjustment (PA) will be issued to
reduce your following year's RRSP contribution limit.
Unlike a Group RRSP or pension plan, only employer contributions are
allowed under a DPSP. Most employers use a DPSP as a complement to a non-contributory
Group RRSP - i.e. an RRSP with no employer contributions.
Contributions to a DPSP are limited to the lesser of 18% of employee
compensation, or half of the defined contribution (or RRSP) limit: $6,750
for 2001 and 2002; $7,250 for 2003; $7,750 for 2004; and indexed from
2005.
Note: Connected persons are not eligible to participate in DPSPs. |
