Should new Canadians join a Group RRSPs?
“Life is what happens to you while you’re busy making other plans.” – Allen Saunders
Canada is a truly multi-cultural country, one that is built on immigration. In fact, without the steady stream of immigrants who come to Canada each year, our population growth would be on a negative rather than a positive trend. Some people come to Canada to build a new life and they settle here permanently. Others come for the short-term, perhaps for a job opportunity that allows them to build a level of financial security that wouldn’t be an option at home. Recently, I chatted with two new immigrants who had questions about whether it made sense to join their company Group RRSP if they were planning to return to their home countries in retirement. It’s a discussion, I have on a fairly regular basis with employees and so I thought it might be a good topic to discuss in this week’s post.
Related article: Everything you need to know about RRSPs
Can new Canadians contribute to a RRSP?
Only those with RRSP contribution room are able to make contributions to a RRSP. A person’s contribution room is based on their earned income from the previous year. Anyone new to Canada, is not able to contribute to a RRSP account in 2014 unless they earned income last year and filed their taxes for 2013. The amount they are permitted to contribute will be detailed on their Notice of Assessment from CRA.
Does it make sense to contribute if you might not stay in Canada?
It’s true that RRSP accounts are intended as a vehicle for retirement savings but that doesn’t mean they only have value if you plan to retire in Canada. Both of the people that I chatted to, worked for companies with a group RRSP plan that included a 100% match of employee’s required contributions. That’s basically free money which belongs to the employee immediately. Whether the employees stayed in Canada for 6 months or 30 years, the doubling of their required contribution through the employer match is a return they couldn’t possibly get through any other investment.
Related article: 10 Great reasons to contribute to a group RRSP
In addition to the advantage of the employer match, there are also the tax benefits of contributing to a RRSP which include reducing taxable income and tax-deferred growth on investments as well as the option to use RRSP savings to help pay for a home or education through the Home Buyers and Lifelong Learning plans.
Related article: Buying your first home
What happens to your RRSP account if you leave Canada?
There is no requirement to close a RRSP account once someone becomes a non-resident of Canada but some investments available to Canadian residents might not be available to non-residents. Withdrawals from a RRSP by non-residents are subject to a 25% non-resident withholding tax. There might also be tax to pay in the country you become resident in depending on whether there is a tax treaty in place with Canada. The tax rules regarding foreign income vary from country to country so it’s important to be aware of whichever laws apply to your personal situation so you can determine the most tax efficient way to withdraw your RRSP savings.
Related article: How to convert your RRSPs to income
At the end of the day, the decision whether or not to invest in a RRSP account is not an one that should be made based solely on the fact that someone may not be living in Canada when they reach retirement. I know first-hand how easily a plan to stay somewhere for just a couple of years can turn into a 15 year adventure (and counting) and I’m glad I made the decision to start saving sooner rather than later. Regardless of how long you stay, there are lots of advantages to establishing a regular savings habit and some very strong advantages to saving using a tax-deferred vehicle. If you are new to Canada, it’s worth taking the time to consider whether investing in a RRSP account is right for you.