RRSPs are Reigstered Retirement Savings Plans in Canada, and they are a popular way for Canadians to save for retirement. They allow individuals to contribute to an account and receive a tax deduction for the contributions made. The money in the account grows tax-free until it is withdrawn, at which point it is taxed as income.
Do You Lose RRSP Money When You Change Jobs?
Changing jobs can be a bittersweet moment as you say goodbye to colleagues and familiar surroundings, but also look forward to new opportunities and better compensation. One aspect to consider during this transition is what to do with your Registered Retirement Savings Plan (RRSP) contributions. It’s important to know that your RRSP contributions do not disappear when you change jobs. The money remains in your RRSP account and you can continue to make contributions to it. However, if your new employer offers a different retirement savings plan, you my need to decide whether to transfer your RRSP to the new plan or keep it separate. There are we few options available to ensure that you do not lose RRSP money when you change jobs.
Transferring Your RRSPs to a New Employer’s Plan
One options when changing jobs is to transfer your RRSPs to your new employer’s plan. This allows you to keep your savings in one place and continue to make contributions to the plan. However, it’s important to check if you new employer’s plan has the same fees, investment options and other features that your old employer’s plan had.
Rolling Over Your RRSPs to a Personal Plan
Another option when change jobs is to roll over your RRSPs to a personal plan. This allows you to have more control over your investments and choose the plan that best suits your needs. However, it’s important to consider the fees and investment options of the personal plan before making this decision.
The Pros and Cons of Keeping Your RRSPs with a Former Employer
Keeping your RRSPs with a former employer can be a good option if you are happy with the investment options and fees of the plan. However, it’s important to consider that you may not be able to make contributions to the plan and that is might be harder to manage your investments.
Withdrawing Your RRSPs When Change Jobs: Tax Implications
Withdrawing your RRSPs when changing jobs will result in taxes being applied to the amount withdrawn. This can be a costly option, and it’s important to consider the tax implications before making this decision. It’s recommended to consult with a financial advisor before making any withdrawals.
Maximizing Your RRSP Contribution When Changing Jobs
When changing jobs, it’s important to maximize contribution allowed by the government and by taking advantage of any employer contributions offered by your new employer.
The importance of Reviewing Your RRSPs when Changing Jobs
It’s important to review your RRSPs when changing jobs to ensure that they are still meeting your needs. This includes checking the investment options, fees, and performance of the plan. It’s also important to ensure that the plan is in compliance with any legal and regulatory requirements.
The Role of Financial Advisors in Managing RRSPs When Changing Jobs
Financial advisors can play a crucial role in managing RRSPs when changing jobs. They provide guidance on the different options available, assist in reviewing and comparing plans, and help to ensure that the plan is in compliance with any legal and regulatory requirements.
Tips for Managing Your RRSPs When Changing Jobs
Managing your RRSPs when changing jobs can be a challenging task, but with the right approach, it can be done effectively. One of the most important tips is to take the time to review your options before making a decision. This means researching the different plans available, comparing fees, and considering the investment options. Another tip is to maximize your contributions by taking advantage of any employer contributions offered by your new employer. It’s also important to consult with financial advisor before making any withdrawals, to ensure that you understand the tax implications and to make sure that the plan is in compliance with any legal and regulatory requirements. Lastly, it’s essential to keep accurate records and to regularly review your RRSPs to ensure that they are still meeting your needs.
Options for RRSP Contributions When Leaving Your Employer
Whether you are leaving your employment voluntarily or involuntarily if you are participating in a group RRSP at work, here is what will happen:
- Your existing employer will notify the plan provider about your exit after they make their last employer RRSP contributions to your account through the final paycheque.
- The plan provider will send you a letter stating how much money you have invested in the plan and provide options for what you can do with the money.
This includes:
1. Cash Out: You can withdraw money from your RRSP account at any age (as long as it is not a locked-in RRSP). However, any withdrawal becomes income in your hand, which attracts taxes at your marginal tax rate. Depending on your annual income and the province of employment, you may have to pay as high as 48% in taxes. Besides, the cash out would mean less money in your retirement.
2. Transfer Your RRSPs: You can transfer your accumulated RRSP funds while moving from one employer to another, while your money stays tax-deferred. You will not lose any of your contribution room either. Usually, the RRSP provider will charge an exit fee for moving your money, but any other penalties are unlikely because the providers typically offer the majority of the investments through group RRSP plans on a “no load” basis.
Note: If your employer has enforced a vesting period (can be a maximum of 2 years), then you may not get to keep the employer’s contribution to the RRSP, if you leave the employer before the end of that period.
3. Transfer to a Locked-in Retirement Account (LIRA): If your RRSP account has a locked-in requirement, you can transfer the funds to another locked-in RRSP, or a LIRA. LIRA differs from RRSPs in two aspects.
- Your funds remained locked until retirement.
- You are not allowed to make any further contributions to your LIRA.
If you wish to access your funds from a lock-in account such as LIRA, you need to convert it into a Life Income Funds (LIFs) account, or purchase an annuity.
4. Purchase an Annuity: You can also consider purchasing an annuity if you are within 10 years of the retirement date set out in your pension plan document. An annuity provides a fixed sum of money regularly over a specific duration. In return, you let the annuity issuer control your funds.
Note: Both RRIFs and annuities provide a steady source of income in retirement. However, your age, income requirements, account value, and a few other factors will determine the annual amount you receive and the number of years that this payout will be applicable.
Maximize Your RRSP Contributions with the Help of Our Experts
Nour Private Wealth (NPW) is committed to providing a range of investment planning services to help our clients extract the most out of their RRSP contributions and construct robust retirement finance plans. Our team of elite wealth advisors has the knowledge and experience necessary to help you make the most of your RRSP contributions, and to ensure that your portfolio is diversified and tailored to your income levels and future lifestyle requirements. We understand that every client has unique needs and we work closely with them to ensure that their retirement finance plans are tailored to their specific situation.
Contact us today to learn more about RRSP contributions and options when you change jobs, and how our team of experts can help you maximize your contributions.
