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ELI5: RPP Vs. RRSP

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So you've landed an awesome job. Good on you! You skim over the package and see a retirement savings program. Even better! In Canada, these plans typically come in two shapes. A Group Registered Retirement Saving Plan (RRSP) and a Registered Pension Plan (RPP), aka a Defined Contribution Plan. Let's see how the two compare. 

Starting with the similarities:

Employer contributions and employee matching. This is why we love these benefits. Employers will contribute a percentage of your salary automatically to your account. On top of that, they will match a portion of your contributions. Who doesn't love free money?

You'll also get a choice in what to invest in - though within the constraints of the plan provider. They'll unusually have a small menu of funds. Try to find the lowest fee option that meets your needs.  

Onto the differences:

The tax treatment is actually the same...but different. Both plans allow you you grow your money tax free. The difference is in how the contributions are treated. The RRP is funded with pre-tax dollars. While a RRSP is funded with after-tax dollars, which are tax-deductible, so also pre-tax dollars (get it?). Same destination, different routes. 

The main difference between the two accounts is flexibility. Both plans are mobile, you can take them with you if you leave your employer. 

The withdrawal rules is where you'll find the RPP to be more strict. Your money is locked in until you retire, whereas a RRSP (despite the name) allows you to withdraw anytime. 

While the RRSP is a bit more flexible, you really can't go wrong with either. Both are great ways to build wealth and get yourself retirement ready. And again, it's free money. 



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