Why it pays to know your PA

Employer-sponsored plans shrink your RRSP room.

Matthew Elder 9 January, 2015 | 6:00PM

Making the most of a registered retirement savings plan and its powerful tax deferral means being aware of your RRSP contribution room. That means totalling any unused contribution amounts from past years and adding that to what you are permitted to put in for 2014. The deadline for making an RRSP contribution that is deductible on your 2014 income-tax return is March 1, 2015.

For many Canadians, a key component of the contribution-room calculation is the pension adjustment (PA). An individual's maximum RRSP contribution for 2014 is the lesser of $24,270 or 18% of his or her earned income during the previous taxation year -- in this case, 2013. From that total you must subtract any PA you had during 2013 from your participation in an employer-sponsored pension plan or deferred profit-sharing plan (DPSP).

Under a defined-contribution (also known as money-purchase) pension plan, your PA is simply the amount that you and your employer contributed. (DPSPs are funded solely by employers.) If you were not a member of a pension plan or DPSP, or no contributions were made to one of these plans during 2013, your PA for 2014 RRSP contribution purposes is zero and there is no reduction in your contribution limit.

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Matthew Elder

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