How an employer RRSP match works
A Group RRSP is an RRSP set up by your employer where contributions come straight off your paycheque, before tax is calculated. Many employers match a portion of your contribution, typically 50% or 100% up to 3% to 6% of salary. Match contributions count against your annual RRSP room. Withdrawals follow standard RRSP rules. CIRO oversees the dealers administering most group plans.
You earn $80,000 and your employer matches 100% of contributions up to 5% of salary. Contribute the full 5% ($4,000) and your employer adds another $4,000, that is an instant 100% return before any market move. Plus your $4,000 contribution saves about $1,240 in tax at a 31% bracket. Effective cost to you: $2,760. Result in the RRSP: $8,000. Beat that with any other investment.
Skipping the group match because you would rather keep cash in your chequing account. You are turning down a guaranteed 100% return. Even if money is tight, contribute at least up to the match before anything else, before TFSA, before paying down low-rate debt, before everything except urgent bills.
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