Can newcomer Canadians join a workplace retirement plan?

Do newcomers qualify for workplace retirement plans? 

Retirement plans in Canada have different contribution, eligibility, and withdrawal rules. In Canada, group retirement plans are highly regulated (like in Ontario) by both the federal and provincial governments. Your workplace plan will have specific participant rules (who can join) and contribution requirements (who can put in money and how much). 

What are the most common types of retirement plans in Canada?

Let’s look at four of the most common types of workplace retirement plans.

1. Registered Retirement Savings Plan (RRSP)

What is it? 

• An RRSP is a tax-deferred saving plan, meaning you only pay tax when you take your money out. It’s for retirement or long-term goals.
• Many employers put restrictions on taking money out of your RRSP, with the exception of a Home Buyers’ Plan (HBP) or Lifelong Learning Plan (LLP).

Who contributes?

• If it’s a mandatory plan, you must join and contribute to the plan if you're eligible to participate. If it’s optional, it’s your choice to join and contribute. 
  • Your contribution can be taken directly from your paycheque. 
  • Your contribution is tax deductible, even if it’s not from your paycheque, which may lower the income tax you pay. 
  • There’s a yearly contribution limit set by the Canada Revenue Agency (CRA). The contribution limit for 2023 is 18% of the earned income you reported on your previous year’s tax return, up to $31,560.
  • If you don’t contribute the maximum amount for the year, you can carry it forward to future years. This is known as your contribution room. 

• Your employer might contribute to the plan and may match your contribution, to a certain limit.

Employer contributions to your RPSP are treated as taxable income to you, which means they're subject to payroll taxes.

Eligibility 

To be eligible to contribute, you need to have earned income, have filed your first income-tax return in Canada. Then you’ll get a notice of assessment form from CRA which will show you how much contribution room you have. 

2. Defined Contribution Registered Pension Plan (DC RPP)

What is it?

• A DC RPP is set up by your employer to provide you with retirement income; your employer chooses how much to contribute to the plan.
• Funds in a DC RPP are locked in right away, most of the time, so you usually can’t take money out before age 55, at the earliest. 

Who contributes?

• Your employer is required to contribute. 

Employer contributions to your DC RPP aren't taxable income to you so are not subject to payroll taxes. 

• You may also be required to contribute or be able to make voluntary contributions, if permitted by your employer.
  • Your contribution is taken directly from your paycheque. 
  • Your contribution is tax deductible, which may lower the income tax you pay. 
  • Money that goes into a DC RPP will reduce the amount you can contribute to an RRSP the following year.

Eligibility 

If your employer offers a DC RPP, you can join right away if you meet the employer's eligibility requirement for the plan and if you've earned income for the current year.

3. Tax-Free Savings Account (TFSA)

What is it?

• A TFSA is for your short-term or long-term savings goals.
• Your money isn't locked in, and you can take it out at any time for any reason. You don’t pay tax when you take your money out of a TFSA.

Who contributes?

• If it’s a mandatory plan, you must join and contribute to the plan if you're eligible. If it’s optional, it’s your choice to join and contribute. 
  • Your contributions aren't tax deductible.
  • There’s also a contribution limit for TFSAs. The contribution limit for 2023 is $6,500. 
• Your employer might contribute.

Eligibility

• You can start taking advantage of a TFSA when you're a resident of Canada, 18 years of age or older, and have a Social Insurance Number (SIN). 
• You can put in the full amount for the current year once you meet the eligibility requirement.

4. Deferred Profit-Sharing Plan (DPSP)

What is it?

• A DPSP is for your employer to share profits with you, which grow tax free in the plan.
• In most cases, you can’t take money out of the DPSP while you're employed with the organization, but some employers allow what’s called in-service withdrawals. You’ll be charged a withholding tax when you take money out.

Who contributes?

• You don’t contribute, but you must join the plan, if eligible, to receive your employer’s contribution.
• Only your employer contributes. 

You don’t pay tax on the funds your employer puts in. 

Eligibility 

Eligibility is determined by your employer.

How do you join a workplace retirement plan?

When you start your job in Canada, you’ll likely receive information from your manager or benefits administrator on the types of retirement programs and benefit plans offered by your employer. This should include instructions on how to join. 

Your employer will have specific rules on who can join what plan, when, and the type of contribution you make—on top of government criteria.  

When you join a plan, you’ll need to decide how much you want to save and choose investments for your savings. Don’t forget to add a beneficiary. If you can, make sure you’re registered to receive your plan statements and tax receipts digitally—it can help make it easier to keep track of everything. 

Make the most of your plan 

Once you’re ready and able to join your workplace retirement plan, remember that every dollar counts, and it adds up over time. You can maximize your contribution to make the most of any matching funds from your employer. It’s never too late to start.