The employee benefits of Group RRSPs
One of the best ways to ensure saving for retirement is not left to the last minute is by making regular payments throughout the year, and one of the best ways to do that is through your company’s Group RRSP.
Group RRSPs make saving for retirement easy. Your money comes off your pay cheque automatically each pay period and is directed to a plan your company has set up. In many cases, companies will also contribute. Employer contribution formulas can vary dramatically. For example, some plans kick in a certain percentage of contributions based on the length of employment. Some contribution limits change each year based on company performance. Surprisingly, there are a large number of people who don’t take advantage of Group RRSPs. Even if you can only contribute $20 per week, a $20 match is a welcome bonus. Here are more reasons why you should seriously consider your company’s Group RRSP.
1. Out of sight, out of mind. If your contributions are coming off your pay cheque automatically you can’t spend them.
2. Free money. Company matches or top-ups are generous gifts.
3. Tax benefits. Your contributions are made with pre-tax income reducing your taxes each pay period. A $25 contribution only costs you $15 off your net pay (assuming a 40% tax bracket).
4. Dollar Cost Averaging. By investing on a continual basis you reduce investment risk by smoothing out any large swings in value.
5. Break on Fees. Your company absorbs any administrative fees for setting up the plan.
If your company offers a Group RRSP, take advantage of it and be sure to consult with your financial advisor when choosing your investments inside the plan.
Comments
Our company provides an RRSP match of up to 6% of our earnings.
I’m unclear on the following:
Should both the employee and employer contribution be used in the RRSP tax deduction that I can claim?
If the employer portion is a taxable benefit, am I really getting any additional tax deduction or is it a wash, and should only be using my contribution to see what my reduced taxes would be, not both.
On the T4, is the employer match included in the taxable earnings box and does that mean my taxable earnings will be increased and affect my taxable margin rate?
The employer contribution of a Group RRSP is a taxable benefit. This benefit is offset by the tax deduction your get so you get the money into the RRSP tax free.
The employee contribution still gets a tax deduction.
Still don’t get it. Does the employee pay taxes on the employer’s contribution towards the group RRSP?