Free Money

Are you throwing free money out the window?

No matter how small and insignificant it seems, free money should be grabbed!

Did you just get hired with a company offering a Group RRSP Plan? Or perhaps you took a job some time ago but didn’t join the company plan? If that is the case, it may be time to revisit HR.

Most companies offering a Group RRSP will allow you to put 3-5% of your earnings into a company plan where they match a portion or possibly all of your contribution. Many would consider this free money. Even a modest 25% match is an instant 25% return on your investment, that is hard to achieve elsewhere.

Many people believe they can’t afford to contribute to an RRSP and forego the deduction without really understanding the benefits. Every year that passes, more “free money” is left on the table.

Your RRSP contribution is deducted prior to taxes being paid, so technically you will pay less taxes each month. When these automatic RRSP deductions are moved at “source” you will not have the chance to spend the money, and really won’t notice the difference.

For example, if you have an income of $4K per month, contribute 3% to the company RRSP Fund, and your employer matches your 3%, you will have $2,880 in your Group RRSP at year end! Your monthly contribution of $120 is deducted prior to taxes, therefore you won’t notice the full $120 missing from your cheque.

Once your deductions are set up at source, it is amazing how quickly we adapt. Your new cheque amount will quickly become the “norm”, and you may forget you are actually saving for your future – now that is a bonus!

An additional benefit is first time home buyers can borrow up to $35,000 from their RRSP for a down payment tax free ($70K if both are first time homebuyers). Note that this is considered is a loan from your RRSP and must be repaid within 15 years.

Time passes very quickly and soon enough another year will have gone by. Make it a priority today to schedule time with HR to discuss your company RRSP plan. Have them set up your contribution so it changes as your income changes. You will be happily surprised a few years from now.

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