RRSPs, TFSAs, VRSPs, PRPPs - when it comes to offering retirement savings plans to employees, there are lots to consider. Make it simpler for your employees to save for the future by helping them understand what their choices are. 

Use these short descriptions of savings plans and comparison chart so your employees  can better understand the main benefits and differences between each option:

TFSA — Tax-Free Savings Account. Employee deposits into this type of account are made with after-tax income, therefore, the contributions and the investment earnings are not subject to tax. There is a limit to how much they can deposit in a TFSA.

RRSP — Registered Retirement Savings Plan. The money employees put into an RRSP and the interest earned are both subject to tax — but only on the date they’re withdrawn. The contribution limit is higher when compared to a TFSA.

PRPP — Pooled Registered Pension Plan. These plans are often preferred by small and medium-sized business, and by the self-employed. As with an RRSP, contributions are tax-deductible and subject to an annual limit.

VRSP — Voluntary Retirement Savings Plan. Offered only in Quebec, a VRSP is similar to a PRPP except that the employee’s contributions are not locked-in.

NRSP — Non-Registered Savings Plan. Your contributions are after-tax money, so they’re not taxed nor are they tax-deductible. Interest earned is taxed. There is no annual contribution limit.

A side-by-side comparison

Features TFSA RRSP PRPP/VRSP1
NRSP
 Tax deductible contributions
 No
 Yes
 Yes
 No
 Employer contributions subject to payroll taxes (EI, CPP, QPP, etc.)
 Yes
 Yes
 No
 Yes
 Annual contribution limit
 $5,500  $25,7302
 $25,7302
 Unlimited
 Unused contribution room can be carried over
 Yes
 Yes
 Yes
 N/A
 Withdrawals create contribution room
 Yes
 No
 No
 N/A
 Impact of withdrawals on government income-based benefits (e.g.: GIS)
 No
 Yes
 Yes
 No
 Withdrawals are taxable
 No
 Yes
 Yes
 No, except for investment  earnings that have not been  taxed previously at the time of  the withdrawal 
 Investment earnings are taxable
 No
 No
 No
 Yes
 Monies are locked-in
 No
 No
 Yes/No3
 No
 Maximum age for contributions
 None  71  71  None
 Capital loss deductible
 No
 No
 No
 Yes

Get advice

To find out which combination of plans will help your employees become better prepared for retirement, you’ll need to weigh a variety of factors, including tax efficiency and plan flexibility for you and your employees. At this point, it’s a good idea to speak to an advisor.

Notes:

1. The PRPP is for employees and self-employed workers whose employment is federally regulated:

2. The 2016 yearly contribution limit under both the RRSP and the PRPP/VRSP is the lesser of 18% of your previous year’s earned income or $25,730.

3. For PRPP, both employer and employee contributions are locked-in. For VRSP, the employer contributions are locked-in but employee contributions are not.

 

Read more on this topic:

Comparison of savings options, Manulife Investments (PDF)

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