Families

Pooled Registered Pension Plans

A pooled registered pension plan (PRPP) is a relatively new type of retirement plan. The Canada Revenue Agency considers contributions you make to your PRPP to be tax-deductible. In many ways, PRPPs function similarly to registered retirement savings plans (RRSP).

Because the assets are pooled, however, these savings vehicles usually have lower administrative costs than similar retirement accounts, making them more attractive to many people.

PRPP Eligibility

If you have a Social Insurance number and are employed or self-employed, you are eligible to join a PRPP. However, your province must also have the legislation in place to support these retirement accounts, or you must work in a federally regulated industry with an employer who wants to participate.

If your employer participates, you can be enrolled in a PRPP. If you are self-employed, you can have a PRPP administrator enroll you. You may choose how much you want to contribute to your PRPP, however, the CRA sets a maximum limit based on the income reported on your previous tax returns.

Contribution Limits

Your PRPP limits are the same as the deduction limits for your RRSP. The deduction limit which is also called the contribution room can be obtained from:

However, if you do not contribute your allowed amount one year, that unused limit rolls into the following year and boosts your next year’s limit. If you make contributions, you don’t have to deduct them in the year of contribution. You only have to report all the contributions and the deducted amount on schedule-7 of your income tax return, then carry forward the unused contributions indefinitely. This is a great option if you don’t owe taxes this year and expect an increase in your income or expect to owe taxes in the future.

Contributions you make to your PRPP, RRSP, registered retirement income fund (RRIF), deferred profit-sharing plan (DPSP), or certain other retirement accounts are all counted toward your contribution limit.

PRPP Transfers

If you have an RRSP, RRIF, or DPSP, you may transfer amounts from those accounts to your PRPP. You may also transfer money from your PRPP to your RRSP or RRIF, and you can transfer money between two different PRPPs. As all of these transfers take money from one registered retirement account and put it into another one; you don’t have to worry about taxation issues. Direct transfers between registered accounts do not affect your contribution limit.

You may also transfer money out of your PRPP to a licensed annuity provider. However, if you transfer your money to an annuity and you take a payout from the annuity during the same year, you have to include the payment on your income tax return that year.

PRPP Distributions

PRPP funds are meant to be saved for retirement. In most cases, if you withdraw money from a PRPP account prior to retirement, you have to pay taxes and penalties on the withdrawal.

There are a few exceptions to this rule though such as death or breakdown of the marriage. If you die and you have money in a PRPP, the CRA requires your estate executor to report the value of the PRPP as income on your final tax return, and taxes are levied accordingly.

However, the account can transfer directly to your spouse or common-law partner, who can opt to transfer it (tax-free) to another retirement account.

Similarly, if you have a financially dependent child or grandchild who has a qualifying disability, you may opt to have the funds from your PRPP transfer to the child’s registered disability savings plan after your death. In this case, the recipient doesn’t have to pay income taxes. However, if you leave the money to a financially dependent child or grandchild without a physical or mental disability, he has to claim the money as income on his tax return.

Filing Your Taxes

Claiming contributions: When you file your tax return, add up all of the contributions you made to your PRPP and your RRSP and report them on schedule 7. Enter the amount you wish to deduct on line 20800 of your income tax return. The contributions are deducted from your income, effectively lowering the taxable income and reducing your taxes owed.

If your employer makes contributions to your PRPP on your behalf, you must report those contribution amounts on line 20810 of your income tax return. Those contribution amounts are not considered to be income, and they are not deducted from your income. However, you have to report them because they will have an impact on your retirement contribution limits.

Claiming PRPP after death: If you are the trustee of a PRPP, you must complete form T3PRP and submit it to the Sudbury Tax Center (the address is on the form). This form has to be submitted no later than 90 days after the end of the trust’s tax year.

Claiming income from a PRPP plan: Upon retiring, you will start receiving income from your PRPP plan. The income will be reported in Box 194 of the T4A slip. Claim this amount on line 11500 of your income tax return. Visit this Turbo Tax link for more details on senior income.

TurboTax software helps you download your PRPP limits through AFR and offers an easy step-by-step guide on how to report PRPP contributions and deducted amounts. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.

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