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Group RRSP


What is Group RRSP?

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. Also read Individual RRSP.

5 biggest advantages to the employer are as below:
# Free Benefit: The group RRSP is a free benefit that the employer can provide to their employees. With most mutual fund companies there is no set-up fee, no trustee fee and no termination fee.
# Employee Retention: Group benefits have always helped employers retain their important employees. If the employer contributes to the employee's RRSP, this goes a long way towards attracting and retaining employees.
# No Liability: One of the biggest advantages is the fact that the employer is not liable for guaranteeing a specific amount of income when an employee retires. The employer is also not obliged to meet the various conditions the government imposes on registered pension plan sponsors, such as the requirement to set up or maintain a pension committee.
# No Administration Required : The bulk of the administration is carried out by the fund company.
# Tax Deductible: Employer contributions are a deductible expense for the employer in the year in which they are made.
5 biggest advantages to the employee are as below:
# Low cost: Unlike many bank GICs or mutual funds, some Group RRSPs require only a minimum contribution of $25 per month. The more you save and the longer you can do so, the bigger your retirement income will be.
# Employer Contribution: With some group plans, the employer may choose to encourage their employees to contribute to the group RRSP by matching contributions by a certain percentage. If the employer matches your contributions by 5 or 10 percent it's like earning an additional 5 or ten percent on your investments. There are not too many good reasons not to get involved in a group plan when the employer does this.
# Immediate tax relief: A $25 contribution only costs you $15 off your net pay (assuming a 40% tax bracket) because you get your tax break when each contribution is made. Rather than waiting for a refund tax return at the end of the year you will immediately stop paying tax on the amount of their pay that is invested in the RRSP.
# Payroll deduction: Your contribution is deducted from your paycheque before you have a chance to spend it somewhere else. Many people walk into their bank just before the annual RRSP deadline to invest in their annual RRSP. This can create a cash strain, and it is often difficult to take advantage of your maximum investment limit when you are making a single, annual payment. A group RRSP creates an easy way to save, as it is often easier to have a small amount of money deducted from each pay cheques than it is to make a large payment once a year.
# Access to competitive investment options: Group RRSPs offer you investments from a variety of top managers. The fund management fees are usually much lower than what you would pay yourself, because you’re part of a larger group. This can work far better for people who are not investment savvy, as there is a professional working for them at a much lower cost. In contrast, many people who invest at the last minute do so at a financial institution they are familiar with, and they select an investment product based on convenience rather than fund performance and their specific investment profile.

Many Canadians find it difficult to save for their retirement. This is especially so when you have to first earn money, pay tax on it, then try to save. Many people also find it difficult to top up an RRSP at the end of the year or make RRSP loan payments. The group RRSP can be a godsend for investors who experience these problems.

If you do not have Group benefits plan in your company yet. Please feel free to get in touch with me for further details. I am sure you understand that, every plan can not be good plan for everyone. Being a Independent Broker, I do not need to force one single product on you. My solution will be based on best options available in the market based on your situation and needs.

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