Group RRSPs are a collection of individual RRSPs where the employer assists a group of employees by handling their contributions through regular payroll deductions on a pre-tax basis. The employer also has the choice of making regular or lump sum contributions on behalf of all or some employees on a pre-tax basis.
As permitted by Revenue Canada, both employee and any employer contributions are made on a pre-tax basis. The employer does not withhold tax for the employee or employer contributions, which results to instant tax savings. The total contributions for each period are remitted by the employer for deposit into the individual RRSPs of the participating employees, at which time the contributions are invested as specified by each employee.
Some of the advantages of a Group RRSP include:
- Employer contributions are totally voluntary
- Employer has full control over employee eligibility and determining and adjusting amounts
- Employer and employee contributions can be made in any combination but cannot exceed an individual’s personal RRSP limit
- Employer contributions are a deductible expense for the employer in the year in which they are made
- Employer contributions “vest” immediately and are not “locked-in”
- Employer contributions are treated as a taxable benefit and therefore subjected to payroll taxes
The monthly payments at retirement depend on the contribution amounts and the return from the investments. Contributions made by the employee into this plan may not exceed the 18% of the employment income for the previous year. If the employee does not contribute the maximum allowable amount in a given year, he/she may “carry forward” the unused amount.