A group retirement saving plan, or GRSP, is a registered investment account designed to provide tax benefits while you save for your retirement. The major difference between a GRSP and its slightly more famous cousin, the RRSP, is that individuals maintain RRSPs while GRSPs are administered by employers. The amount changes annually, but in 2017 most individuals are allowed contribute 18% of their income or $26,010 to a GRSP, whichever number is smaller. (If you have both a GRSP and an RRSP, your combined contributions cannot exceed that number.)
The benefits of having a GRSP are twofold. First, any contribution you make to your GRSP is considered “pre-tax”— it gets shaved off the top of the income you declare and pay taxes on. For instance, if you make $75,000 and you contribute the maximum $13,500, you’ll only be taxed on earnings of $61,500. It also means that as your investments grow, you’re earning returns on money that would otherwise be paid in taxes. It’s a kind of loan from the government. The other big advantage of a GRSP—and this one’s a huge one—is that it likely entitles you to piles of free money courtesy of your boss. Employers, the nice ones at least, usually match your GRSP contributions up to 3 to 5% of your salary. These are the reasons we think investors should contribute as much as they can afford to their account.
There are a couple things to be aware of. First, you’ll still have to pay taxes when you withdraw the money. But, since you will hopefully be withdrawing the money only after you retire when you are probably earning less, you’ll be taxed at a lower rate. Second, if you do need to withdraw money before you retire – unless you use it for some government-sanctioned reason, like buying a house or going back to school — you’ll be penalized with up to 30% tax on the money. Third, an important difference between a GRSP and an RRSP: with the former, you save on taxes right at the time of your paycheck; with the latter, you don’t get that money back until tax time the following spring. And unlike an RRSP, since your employer administers the account, with a GRSP you’ll have limited or even no options as to how your retirement is invested.