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11-29-2012, 12:14 PM
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Originally Posted by mouser View Post
Surprised no one asked the question: what's the motivation for Canada to cap pension contributions to $24k/year?
Pension contributions reduce taxable income in the year they are made, and payments (withdrawals) are taxed in the year retirees get them. So in essence a pension contribution (a) defers taxes on the part of your income that you put aside for your old days, and (b) therefore lets you invest using pre-tax money.

The greater the contribution, the greater the deferred taxes, and the greater the "pre-tax investment" advantage. Wealthier people (e.g. including NHL players) can afford to make greater contributions so they benefit the most from those rules. Canada caps pension contributions to limit that benefit for wealthier people.

edit: What Darche leaves out is that to get to $1 million, the guy on a US team needs to contribute more to his pension than his Canadian team counterpart. So it's not really $1 million vs. $375k, more like $1 million vs. ($375k + whatever the Canadian team guy was able to do with the reduced contributions). $1 million is still going to be bigger but it's not quite the margin Darche alluded to.

barneyg is offline   Reply With Quote