Frequently Asked Questions
The Canadian government introduced the Registered Retirement Savings Plan (RRSP) in 1957 as a way for Canadians without employer-sponsored pension plans to save money for retirement. When you add funds to save through an RRSP account, you are making contributions from pre-tax income (meaning the amount of your contribution is deducted from your current income before it is taxed). Your RRSP contributions grow tax-free while they’re in the plan but are taxed on withdrawals for retirement income. In 2022, the maximum you can contribute to an RRSP is 18% of your earned income to a limit of $29,210.
A Deferred Profit Sharing Plan (DPSP) is a workplace savings program that many businesses use for employee incentives, or to help them save for retirement.
Only employers can contribute to a DPSP. The annual contribution limit is either 18% of the employee’s annual earned income or half of the money purchase limit (up to $15,390 for 2022), whichever is less. DPSP contributions made on behalf of an employee in a particular year reduce the employee’s Registered Retirement Savings Plan (RRSP) contribution room for the following year. For example, if an employer contributes $1,000 to a DPSP in 2022, the employee’s RRSP contribution room will decrease by $1,000 in 2023.
DPSP contributions grow tax-free while they’re in the plan but are taxed when the employee withdraws the funds.
Common Wealth is a group retirement plan that offers a group Tax-Free Savings Account (TFSA) and a group Registered Retirement Savings Plan (RRSP). When you enroll in the plan, you can choose how much of your contributions goes towards one or both accounts.
You can withdraw from your RRSP before retirement, but it can result in negative tax implications, and your contribution room will not be restored. Within the Common Wealth plan, there is a transaction fee to complete a withdrawal.
When you withdraw funds from an RRSP, your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw.
- 10% (5% in Quebec) on amounts up to $5,000
- 20% (10% in Quebec) on amounts over $5,000 up to including $15,000
- 30% (15% in Quebec) on amounts over $15,000
If you’re looking to take advantage of the Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP in an interest- and tax-free manner to purchase or build your first home.
Eventually, all RRSPs must be converted to a Registered Retirement Income Fund (RRIF), so that you can set up a steady stream of income during your retirement.
For every year before age 65, your CPP benefit is reduced by 7.2%. For every year after age 65, your CPP benefit is increased by 8.4%. That means that if you decide to access your CPP benefits when you turn 60, you’re choosing to get 36% less on each CPP benefit cheque. However, if you wait until your 70th birthday, you’ll get 42% more on each CPP benefit cheque.
Depending on your income, it might be better to get a greater number of smaller-sized benefit cheques by accessing CPP benefits before age 70. If you are middle- or higher-income, you might want to take a lower number of larger-sized benefit cheques by assessing CPP benefits at age 70.
Read more in our article about maximizing government benefits at retirement.
Guaranteed lifetime income is an annuity offering that can help protect your retirement finances from some of the key risks that arise in retirement, including longevity and market risks. A life annuity is a form of life insurance because it is paid based on the life of the insured person, providing guaranteed regular income in one’s retirement years.
Even after retirement, you continue to reap the benefits of a Common Wealth plan. You would still have access to the low-cost investment funds as part of the plan, which would automatically be adjusted (more conservative) according to your age and stage. We’ll also provide support in turning your nest egg into actual retirement income by converting to and managing a RRIF.
You will be able to access your retirement income from the plan in a number of different ways. They include setting up a regular withdrawal based on a percentage of assets and/or a fixed pension-like payment. You also have the option to withdraw funds in a lump sum or through a transfer to another TFSA, RRSP, or RRIF.
The deadline for RRSP contributions falls 60 days into the new year. March 1, 2023, is the last day for contributing to an RRSP, in order to claim a deduction on your 2022 tax return. The deadline to contribute to your Common Wealth RRSP is February 28th, 2023, at 11:59 pm EST.
General contribution limits for RRSPs, TFSAs and DPSPs are set by the government and can be found here.
If your plan includes a DPSP, your employer’s DPSP contributions will reduce your RRSP contribution limit next year. For example, if your employer contributes $1,000 to your DPSP in 2022, your personal RRSP contribution room will decrease by $1,000 in 2023.
You can view your individual contribution limits by logging into your CRA My Account or by looking on your latest notice of assessment under “Available contribution room for [YEAR].” If your plan includes a DPSP, contributions made on your behalf in a particular year reduce your RRSP contribution room for the following year.
It is your responsibility to ensure you do not exceed your limits under the Income Tax Act. There are penalties for over-contributing. You will be solely responsible for any taxes or fines imposed if contributions exceed the RRSP or TFSA limits. We provide education to members about their limits as part of their account.
You can set up a monthly savings plan, and make other contributions throughout the year as you would like. Monthly savings plans are pro-rated and capped at the annual contribution limits, but if you have more contribution room, you can make additional contributions as you wish
The Tax-Free Savings Account (TFSA) was established by the Canadian government in 2009 as a “flexible savings vehicle” for Canadians. When you add funds to a TFSA, you are making contributions from income you’ve already paid tax on. Your contributions grow tax-free while they’re in the TFSA account, and you aren’t taxed on any withdrawals. For 2023, you can save up to $6,500 in your TFSA, regardless of your income. This contribution room grows each year if you don’t use it. The total potential contribution room since the TFSA was created in 2009 is $88,000.
Vesting gives a plan member ownership of the employer’s DPSP contributions. A DPSP can have a maximum vesting period of two years from the plan enrollment date. If an employee terminates their employment before they vest in the plan, the account value will be forfeited and returned to the employer, and the member’s RRSP contribution room will be restored. An employer can override vesting in special circumstances, such as retirement or voluntary termination.
Group Retirement Plans
Common Wealth’s fully digital platform offers registered group retirement plans, including a group Registered Retirement Savings Plan (RRSP), a group Tax-Free Savings Account (TFSA), a group Registered Retirement Income Fund (RRIF), and a Deferred Profit Sharing Plan (DPSP). Select plans also offer a group annuity, or guaranteed lifetime income program.
Common Wealth is a fully digital group retirement platform, that offers low-fee group RRSP, TFSA, RRIF and DPSP accounts in a single plan, making it an affordable benefit for any size company. It is the only plan on the market that offers personalized planning and smart in-app suggestions, so members know:
- How much retirement income they will need in retirement
- How much they can expect in government benefits
- How much to save, and what account to save in
- How to minimize taxes and maximize government benefits
- Where to invest based on their age and income
With Common Wealth, members keep their low fee plan for life. The plan offers automatic investing in target-date funds from BlackRock, the world’s largest asset manager – giving you professionally managed funds, tailor-made for retirement. By combining group purchasing power, digital technology, and world-class retirement research, the plan has the potential to deliver up to 3x the value for money of a typical individual approach to saving for retirement.
While most investment options on the market focus on accumulation of assets, our approach is based on monthly retirement income. The plan does all of this with lower fees and a legal duty to administer and manage the plan in the plan members’ best interests.
This plan is meant for all! Anyone who works for a Canadian employer who is participating in the plan is eligible to join as a member.
There is no maximum age limit to join the plan, although members cannot contribute to a TFSA if they are under 18 years old. Members can contribute to an RRSP as long as they have available contribution deduction room or until December 31st of the year they turn age 71.
Members must be Canadian residents for tax purposes in order to join the plan.
Yes! The benefit of this plan is that members have the option of contributing to a TFSA. There is no age restriction for contributing to a TFSA, which allows members over the age of 71 to contribute to the plan. Even if employees are drawing down their RRIF contributions, they can still contribute to their TFSA. In addition, unlike RRIF requirements, there is no obligation to draw down TFSA funds.
Yes! Common Wealth is designed for all Canadians.
The plan makes it as easy as possible for every member, regardless of their age or income level, to get on a path to retirement success and stay on track. The plan supports this goal through saving and investment strategies and options, low fees, plan portability, and tax and government benefit optimization.
No. We do not require a minimum number of participating employees in order to join the plan as an employer.
Our team can definitely help you with that. We can work with your team to understand your current group retirement program and come up with a strategy for switching.
As the sponsor of the plan, you would be responsible for:
- Supporting Common Wealth with the distribution of plan materials
- Working with us to facilitate employee education sessions
- Providing an up-to-date file of eligible employees, including information to support payroll deduction processing
- Providing a payroll file that contains member and, if applicable, employer contribution details and remitting contributions to the custodian, Canadian Western Trust
It means that Common Wealth has to act in the best interests of plan members.
Only for-profit making companies are eligible to sponsor a DPSP, and only employers can contribute to the plan. Contributions are tax-deductible for the employer and must be made no later than 120 days after the end of the fiscal year. There is no requirement for an employer to make contributions if they did not generate enough revenue.
Connected shareholders cannot participate in the DPSP (e.g., corporation owners, their relatives and spouses and anyone with more than a 10% stake in the company).
As the plan sponsor, employers are required to sign two agreements:
- A Sponsor Agreement with the plan custodian, Canadian Western Trust Company (CWT). The agreement outlines the roles and responsibilities of each party. For example, it outlines that CWT is responsible for holding and safeguarding the assets of plan members and for maintaining the registration of the plan with the CRA.
- A Service and Fee Agreement with Common Wealth, the plan administrator (and provider). This agreement details your responsibilities as the plan sponsor, as well as Common Wealth’s. For example, obligations related to communications, administration, fund access, fees, and privacy of information are outlined in the agreement.
In addition to these two agreements, employers who sponsor a DPSP will also be required to sign the following documents:
- Deferred Profit Sharing Plan Trust Agreement with the CWT, the custodian and Common Wealth, the plan administrator. Like the Sponsor Agreement, it outlines the roles and responsibilities of each party related to the DPSP.
- Forms required by CRA to register the plan including a certified copy of a Board resolution approving the application for registration and a signed T2214 DPSP application form.
Plan members can select from one of a series of BlackRock target date funds, which provide a mix of equities, fixed income, and real assets. The fund is matched to each plan member’s expected retirement date, and the asset mix is automatically adjusted to become more conservative as they get closer to that date.
We are interested in offering something thoughtful on responsible investing, also known as ESG (Environmental, Social, and Governance), as part of our plan. The plan’s funds are managed by BlackRock, which manages more than $10 trillion in assets and serves more than 35 million investors. BlackRock is committed to evaluating sustainability insights and data across all of its investment processes and focusing on its dedicated investment stewardship activities.
BlackRock is currently researching ESG options in Canada and is looking to evolve the target date fund portfolios in the near future. We will continue to work with BlackRock to explore opportunities to integrate more responsible investing components into the plan’s investment program.
For more information on BlackRock’s approach to sustainable investing, you can check out the firm’s 2021 Stewardship Expectations, as well as BlackRock CEO Larry Fink’s focus on sustainability in his annual letter to chief executives.
The investment manager is BlackRock, the world’s largest asset manager. Founded in 1988, BlackRock has over $10 trillion USD in assets under management, including managing over C$275 billion in assets for Canadian clients. The firm pioneered target date funds in 1993 with the launch of LifePath Funds. BlackRock is the market leader in Canada for target date funds, with over C$30 billion in assets in its LifePath products, which have been serving Canadian investors since 2007. LifePath is used as the default investment option in some of Canada’s largest defined contribution plans.