Employees who are fortunate enough to participate in an employer sponsored Group RRSP plan will be further ahead than those investors who provide for their future retirement needs by contributing to an Individual RSP.
The Basics of a Group RRSP:
The employer arranges for employees to make contributions through a schedule of regular payroll deductions.
The employee determines the amount of the monthly/annual contribution.
The employer deducts the contribution amount and submits it to the investment manager selected to administer the group account.
The contribution is then deposited into the employee’s individual account and invested as specified.
Instant Tax Savings:
The big difference with a group plan is that the employee/contributor realizes the tax savings immediately, while with an individual plan, you wait until the end of the tax year for your tax refund.
So, the government gets to use your money, in effect, an interest free loan. Whereas, Group RRSP contributions are made on a pre-tax basis, so the amount of tax withheld by the employer is calculated after the group RRSP contribution is deducted from taxable income.
Result – an instant tax saving to the employee. With a group RRSP, you will not overpay your taxes during the year and then have to wait until your income tax return is processed to receive a refund.
A Group RRSP cuts taxes instantly at source and provides the difference as extra take-home pay to be spent or saved as the employee pleases.