Group RRSP: Saving for the future
Owning a business is a large investment. Not only you are investing in the success of the business, but you are also investing in the employees you hire to help your business achieve success over time. One effective way to reward your employees for being productive and contributing to the success of the business is through a group registered retirement savings plan.
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What is a Group RRSP plan?
Before we jump to Group RRSP let discuss first what is RRSP in Canada means.
To answer it clearly, well there’s no much better answer that we can get out there than the source. According to the Canada government website:
Registered Retirement Savings Plan
or simply RRSP is a retirement savings plan that you (Canadian) establish, that we (government) register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan.
In layman’s terms, RRSP is like a superhero of modern retirement planning that started to rescue each Canadian since 1957.
Now that we’re all cleared about RRSP, let dig differ now to RRSP for employed Canadian.
Also known as Group RRSP, a Group Registered Retirement Savings Plan is an employer-sponsored retirement savings plan administered on a group basis. It’s identical to individual RRSP but only set up by your employer.
Most companies offer their staff the opportunity to join the group RRSP, and participation is optional. Each employee who decides to opt-in receives their RRSP account and full autonomy over how their money is invested. Many plans have members complete a questionnaire beforehand to determine their preferred investment strategy and simultaneously build an investor profile.
Contributions to the group RRSP are automatically deducted from each employee’s paycheque, and the maximum contribution limit in 2019 is 18% of a contributor’s total earned income. Employees also have the option to purchase their RRSP to build up their retirement savings even further.
Why should I get Group RRSP for my employees?
Some Canadians are not naturally inclined to save money, which can prove to be detrimental in later life. With a group RRSP, employees are forced to build up their savings, as the contribution is automatically deducted from their paycheque. Also, the fees for managing this group account are relatively low as compared to those associated with individual RRSPs. On average, the management fees for a group RRSP tend to be less than 1%.
In addition, some employers choose to match their employees’ group RRSP contributions, effectively allowing employees to double their savings. All contributions matched by employers are also tax-deductible for the employees.
Employer’s benefits of having a Group RRSP include:
- Employee retention
- Using them to attract the best talent
- Financial security for employees and their families
- Using them to demonstrate concern for your employees outside of work
Group RRSP vs Individual RRSP
In a simple definition, a Group RRSP is just like an individual RRSP but offered through your employer or place of work. It features tax-deductible contributions and tax-deferred growth. The main difference in terms of advantages is that your employer adds to the equation and this difference can be substantial. Also unlike an individual RRSP, members of a Group RRSP are not generally permitted to purchase individual securities.
This group plan is very flexible in terms of how money is received at retirement. The policy member has the option of taking the money as cash, purchasing a life annuity, purchasing a fixed-term annuity or purchasing a Registered Retirement Income Fund (RRIF).
Group RRSP advantages
- Automatic deductions through payroll for the contributions
- Low minimum deposits
- Low to none administrative costs
- Flexible in terms of eligibility and contribution levels
- Income splitting is optional for a married employee
- Have an option for Enhanced RRIF and annuity rates at retirement
Group RRSP disadvantages
- Employer contributions are taxable
- Limited investment option
- Shared control (or limited) to withdraw funds
- The plan may be cancelled at any time by the employer
Where can I get a Group RRSP in Canada?
Group Registered Retirement Savings Plans are generally administered by major banks and are also available from licensed insurance brokers. FREE Group RRSP quotes are also available (by clicking the button above) to help you compare the offerings from major insurance providers before you decide.