How Pension Adjustment Effects Your RRSP Contribution Room

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As we mentioned in other articles the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans. In fact, besides understanding the company retirement pension plan it is for your own benefit to know how pension adjustments (PA) affects your RRSP contribution room.

I. Understand PA adjustment and benefits
1. The PA represents pension benefits accruing to you under a company pension plan or deferred profit-sharing plan that will reduce your RRSP contribution room.
2. Under defined benefit pension plans, the actual contributions made are generally far less than the PA.
3. When you leave an employer (particularly after a short period), the benefits you are entitled to are often far less than your accumulated PA’s.
4. The PA is generally added to your RRSP contribution room in the year you cease employment; it is reported as a separate amount on a T10 slip.
5. Since 1999, Revenue Canada has allowed tax-free RRSP withdrawals to finance full time education for you or your spouse, with the total withdrawn not exceeding $20,000 over 4 calendar years and funds must be returned to the RRSP over a 10 year period.

II. Pension adjustment effects your RRSP contribution room
1. The PA reduces your RRSP contribution amount since you earn pension benefits through your employer's respective pension plan and your RRSP is limited to 18% of the previous year`s income up to $20,000 in the year of 2008 that varies every year with adjustment to inflation index.
2. In determining your RRSP contribution limit for the following year, Revenue Canada takes 18% of your earned income for the year up to the maximum limit, $20,000 and then reduces it by your PA contribution amount.
For example, if your PA amounts to $9,000 per year and your maximum RRSP contribution amount is $20,000, you may place $11,000 into your RRSP.

I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

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http://financialinvesting09.blogspot.com/ Posted by Kyle J. Norton at 5:15 PM