Group RRSP
Those employees fortunate enough to participate in an employer group RRSP plan are even further ahead than those who provide for their future retirement needs by contributions to an individual RRSP. A Group RRSP Plan is an employer - sponsored savings program, approved by the Canada Customs and Revenue Agency that permits tax deferred savings for retirement purposes. Contributions to a RRSP are tax deductible and earnings on contributions are sheltered from taxes until they are withdrawn.
Group RRSP Basics
In a group RRSP, an employer arranges for employees to make contributions, as they wish, through a schedule of regular payroll deductions. The employee can decide the size of contribution per year and the employer will deduct an amount accordingly and submit 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 contributor realizes the tax savings immediately, instead of having to wait until the end of the tax year. With an individual RRSP contribution, the tax break comes as a refund after taxes are filed the following year. This means of course, the government gets to enjoy an interest free loan of the contributor's money. On the other hand, 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.