Bonus from company, how to accept it??

[Brett]

First off Hello! lots of good info here.

So my employer is giving everyone a bonus, $3750. which

option 1 they will deposit into my personal RRSP account at$3750 or
option2 They will add it to a pay cheque.

So if it's added to my pay it will end up being 2200-2500, which I can invest and claim as a contribution. From what I understand I cannot claim it as a contribution if it is before taxes as in option 1.

So if I take option ! does that mean I will actually owe income tax on the 3750 come tax time??

wouldn't i be better off taking the 2200 and investing it, taxes will have been paid and I'll be able to use it towards RRSP contribution...

??

Thanks
Brett

[stephenheath]

In option 1 it's not that you cannot claim it as a contribution, it's that by putting it directly into your RRSP, they don't have to withhold taxes... so think of it as them giving you $3750 more on your paycheck and you contributing it automatically... your contribution cancels out the additional tax owing so you get to put the maximum possible dollar into your RRSP.

In option 2, there's no guarantee that you would put it in your RRSP, so they add it to your salary and the government takes it's cut. If you choose to contribute what is left, you'd get some of that withheld tax back next April. So, assuming you have a 35% tax rate, option 1 means all 3750 is contributed, option 2 means you get 3750, have about 1312.50 withheld, whic leaves you 2437.50 to contribute. If you contribute all of that, it would get you back 853.12, so you'd have 2437.50 inside your RRSP and 853.12 outside your RRSP.

So it comes down to some other questions...

1) Do you have $3750 room in your RRSP?
2) Will you be better off having $3750 in your RRSP or 2200-2500 outside your RRSP? (Ie, if you have high interest loans, you might want to take the cash and pay them down).
3) If they contribute to the RRSP, are they putting it in some kind of group RRSP where your returns are diminished or can you put it where you want?

[Brett]

Ok

I do have LOTS of room in my RRSP
It would not go into a group it would go to my SD RRSP
I have credit card debt and an LOC totaling 15k and a mortgage .
I make 100k a year and am HORRIBLE with money, I always find stuff to buy instead of paying down debt...

[brad]

My company handles this a third way: in lieu of a pension plan we get a "retirement bonus" each year that's a separate check or deposit (not part of a paycheque) for the full amount (a percentage of our gross income), no taxes withheld. That way the money is yours to do what you want with it, with the understanding that if you put it in your RRSP you won't have to pay taxes on it but if you spend it on other things it'll be added to your income and you'll have underpaid your taxes for the year (and hence will owe federal and provincial taxes next year at tax time). The bonus arrives in February, which allows us to choose which year to allocate it to if we're putting it into our RRSPs.

[kcowan]

2) Will you be better off having $3750 in your RRSP or 2200-2500 outside your RRSP? (Ie, if you have high interest loans, you might want to take the cash and pay them down).

I make 100k a year and am HORRIBLE with money, I always find stuff to buy instead of paying down debt...

I would take the direct to RRSP option, then develop two plans, 1) a budget to enable you to pay off all your debt as soon as possible and keep it there, and 2) a strategy for investing your portfolio.

[Homerhomer]

option 1 they will deposit into my personal RRSP account at$3750 or
option2 They will add it to a pay cheque.

wouldn't i be better off taking the 2200 and investing it,
Brett

Brett, it would be best to take cash and put it toward $15k debt and then save money to pay the rest of it.

However, since you are terrible with money it probably won't make any difference what you do with it unless your financial goals (and achievements) get readjusted and the balance is shifted a bit towards spending less than what you make.

For start you will be able to afford more toys if you don't have expensive debt to service ;-)

[OptsyEagle]

By the way, if you do take option 1, you will be claiming it as a contribution. It is just that, like the others have said, it will not result in any refund since no tax was withheld on it, to refund.

[Brett]

Brett, it would be best to take cash and put it toward $15k debt and then save money to pay the rest of it.

However, since you are terrible with money it probably won't make any difference what you do with it unless your financial goals (and achievements) get readjusted and the balance is shifted a bit towards spending less than what you make.

For start you will be able to afford more toys if you don't have expensive debt to service ;-)

Well,,, I decided, thanks to all the input and a little push/inspiration to dice my CC ( literally ). Take the 2K and put it on my CC bill and make $500 monthly payments until it is paid off. Then order a replacement card and have my limit reduced.

Then!, try and come up with a repayment plan for my LOC and come up with some kind of savings plans/plans
.


I think finding this forum and doing some research will help me change my financial self if yo will I have always tinkered and never really made the commitment and well I'm getting older and should start taking care of this stuff before it to late.

Thanks
Brett

[Homerhomer]

Great to hear that Brett, keep it up.
I have been in somewhat similar situation in the past so it can be done ;-)

[kcowan]

We had to do it 10 years ago in order to retire, Brett, so you are getting an early start.