What are the differences between a Registered Retirement Savings Plan (RRSP) and a Registered Pension Plan (RPP)?

what is rpp contributions

Registered Retirement Savings Plans (RRSP) and Registered Pension Plans (RPP) are both retirement savings plans that are registered with the Canada Customs and Revenue Agency. RRSPs are individual retirement plans, while RPPs are plans established by companies to provide pensions to their employees.

Contributions to both RRSPs and RPPs are not taxed. If someone is taxed at a rate of 30% and he or she contributes $1,000 to an RRSP, the entire sum is applied to the account. In contrast, if the individual took those funds in wages, he or she would lose $300 in income taxes. Individuals and their employers may both contribute to RPPs, and neither's contributions are taxed.

Money earned from both RRSPs and RPPs is not subject to income or capital gains taxes. However, withdrawals from both plans are taxed as income.

Individuals are

allowed to contribute the lesser of $22,000 or 18% of their earned income annually to their RRSP. For example, if an individual earns $50,000 in a year, he or she would be able to contribute up to $9,000 annually to a RRSP.

Maximum contributions on RPPS, however, vary based on which type of RPP is being used. There are two types of RPPs – defined benefit RPPs and money purchase RPPs. In defined benefit plans, the pension amount is known and does not change, but the contribution amount varies. These plans do not have a yearly maximum contribution limit.

Money purchase or defined contribution plans do not have a set or predictable pension amount, but employees know how much they are expected to contribute. Maximum annual contributions to money purchase RPPs are the same as they are for RRSPs.

Source: www.investopedia.com

Category: Bank

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