Understanding Canada’s Retirement and Savings Plans: RRSP, LIRA, DCPP, DPSP, and EPSP

Planning for your financial future in Canada starts with understanding the alphabet soup of registered savings plans. Whether you’re saving for retirement, changing jobs, or receiving profit-sharing benefits, it’s essential to know what each plan does, how they differ, and how they work together. Here’s a clear breakdown of RRSP, LIRA, DCPP, DPSP, and EPSP.

What Is a Registered Plan?

Registered plans are savings or pension vehicles approved by the Canada Revenue Agency (CRA). They offer tax advantages to help you grow your money. Contributions may be tax-deductible, and investment growth is tax-deferred. Each type of plan has its own rules around contribution, withdrawal, access, inheritance, and purpose.

1. RRSP: Registered Retirement Savings Plan

• Purpose: Build personal retirement savings while getting a tax break.

• Eligibility: Must have earned income and file taxes in Canada.

• Who Contributes: You make contributions; spouses can contribute to each other’s plans.

• Tax Benefits: Contributions are deductible; investments grow tax-free until withdrawal.

• Withdrawals: Taxed as income unless under HBP or LLP.

• If You Die: RRSPs are considered a deemed disposition — the full value is included in your income the year you die unless:

  • Transferred to a spouse or common-law partner tax-free

  • Rolled over to a financially dependent child (minor or disabled)

• Who Pays Tax: If not rolled over, your estate pays the tax before distribution.

• What If You Leave It to Someone Else? That person may receive less, because the estate pays the tax first.

2. LIRA: Locked-In Retirement Account

• Purpose: Hold former pension plan money after job change.

• Access Age: Normally 55+, must convert to LIF or annuity.

• Other Withdrawal Options:

  • Unlock for hardship (rent, medical, low income)

  • Small balance unlocking

  • Non-residency unlocking

• If Not Converted: You cannot access it unless you meet unlock criteria.

• If You Die:

  • If you have a spouse, funds automatically go to them tax-deferred.

  • If no spouse, it goes to your beneficiary or estate, and the amount is fully taxed.

• Deemed Disposition: The LIRA value is treated as income unless rolled to spouse.

• Who Pays Tax: The estate unless rolled over.

• Tip: Always name a spouse or beneficiary to avoid probate and minimize tax.

3. DCPP: Defined Contribution Pension Plan

• Withdrawals: Not possible while employed. On leaving, transfer to LIRA.

• No Early Access: Cannot unlock until funds are moved.

• What Happens If You Die Before Retirement?

  • Spouse: Automatically receives the full value (usually must convert to LIRA or LIF).

  • No Spouse: Goes to named beneficiary or estate. Tax applies.

• Deemed Disposition: Yes, unless transferred to spouse.

• Tip: Ensure you name a beneficiary with your HR department to avoid tax hits.

4. DPSP: Deferred Profit Sharing Plan

• Vesting Required: Must wait 2 years (or as defined) to keep the funds.

• After Leaving Job: Transfer to RRSP or LIRA.

• If You Die:

  • Before Vesting: Your estate likely gets nothing.

  • After Vesting: Funds go to spouse (if named), or beneficiary/estate.

• Taxation:

  • Spousal transfer: Tax-deferred

  • Otherwise, estate pays tax on deemed disposition

• Tip: Confirm vesting schedule. If near retirement or switching jobs, wait until vested to avoid loss.

5. EPSP: Employee Profit Sharing Plan

• Taxed Immediately: No tax sheltering like RRSP/DPSP.

• If You Die:

  • Considered part of final income; taxed accordingly.

  • Paid out to estate or beneficiaries.

• No Deferral Options: Unlike other plans, this one doesn’t allow rollover.

• Who Pays Tax: Estate or recipient depending on how it’s set up.

• Tip: EPSPs are best for bonuses, not long-term estate planning.

Comparison Table

Final Thoughts

Each of these plans plays a different role — some are great for retirement income, others for employer incentives. But what they all have in common is: you need to know the rules now to avoid regrets later. That includes understanding who inherits, how tax works, and what happens when life changes.

If you die with a registered plan, who gets it — and how much tax they pay — depends on the type of plan and your beneficiary choices. Always review your designations, keep records up to date, and talk to a financial planner if unsure.

📌 In the next article: We’ll break down exact withdrawal rules, provincial exceptions, and tax forms — especially for Ontario, Alberta, and BC.

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