Bonuses – pay it out or contribute to a Group RRSP (pros & cons)

February is a month that is commonly used for paying out bonuses to employees. One of the reasons for this is so that employees can use those bonuses to contribute into their RRSPs prior to the RRSP contribution deadline. Another reason, is that it allows employees to be taxed on these bonuses in the following year, vs the previous year. Some employers will pay out this bonus directly and employees can contribute it into their own RRSP plans or employers will make the contributions into a Group RRSP that the employer establishes for their employees. There are pros and cons to both options.

Self Administered plans BenefitsGroup RRSP Benefits
You control where your money is investedThe company takes care of managing the plan (i.e. less work for you)
You can determine how much you put into a planYour withholding taxes from your employer are less (takes into account the deduction you’d receive for making an RRSP contribution), so more $$ is in your pocket each pay period
You can enlist various advisors to assist with making decisions about where your money is investedAs the withholding taxes are reduced with the contribution, you can put more money into your RRSP right away rather than waiting for next year’s tax refund
Self Administered plans CautionsGroup RRSP Cautions
It can be more time consuming for youYou don’t control how your money is invested
You may forget to deposit an amount into your planThere could be some restrictions on what happens when you leave your company.
    What your money is invested in may be restricted to certain types of investments