# Employer to depsoit in RRSP vs self?



## DavidJD

My wife was told that she was entitled to about $5,300 in retro pay due to a salary calc error. Her employer suggested depositing it directly into her RRSP acct. so that she did not get hit with high taxes.

I don't see a difference if she gets a cheque for the full amount less her regular deductions and then deposits it herself versus the employer depositing it directly - without the income tax etc. - and then paying the taxes etc. later.

Can and do employers make direct deposits into RRSPs? Is there an advantage if so, that I am unaware of?

I realize I will need to confirm so more details but what should I know to make an informed decision?

This year she was on Mat leave until mid July so her income was much lower than it would have been - I suspect that makes it a good year to get the retro pay taxed...other considerations?


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## andrewf

The advantage is that you avoid loaning the government 50% of the amount until next April/May when your refund comes in.


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## DavidJD

andrewf said:


> The advantage is that you avoid loaning the government 50% of the amount until next April/May when your refund comes in.


True. I am wondering if the advantage is any greater than that. She would lose the ability to direct the funds anywhere else, RESP etc. She may find it better to put only some into an RRSP. 

There is also growth/income that it would generate in the RRSP in a larget amount.

However I am assuming that the employer can indeed direct the gross directly into her RRSP...


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## andrewf

Yes. Many employers offer to deposit payroll deductions directly into RRSP accounts. This is not unusual. Usually it is a set deduction each pay, but many companies also make allowances for bonuses, etc. to be deposited as well. This is good for me as my company pays bonuses in Feb/March, and the deductions on this amount aren't refunded for 14-15 months.


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## OptsyEagle

If you take it directly the employer will withhold tax. If you have them put it into an RRSP, they will not. If it stays there you avoid the tax until it comes out. If you withdraw it from the RRSP at any time, you only pay the tax you would have had to pay if you took the money directly. You cannot lose if it goes to the RRSP but you can lose if it doesn't.

Now you can take it directly, have withholding tax and then put it into the RRSP yourself and get the tax back, with one little catch. It's the chicken and the egg problem. For example, if they pay $5,300 to you they will most likely withhold 20% or $1,060, giving you $4,240. Now, if you want to put it into the RRSP to get back the $1,060, you will need to contribute $5,300, but remember, they only gave you $4,240. So you will have to come up with $1,060 from some other source in order to get the full amount of tax back. Not an insurmountable problem, but an issue many people don't think about.

Good luck.


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## atrp2biz

I know this was posted somewhere else in the forum, but if you wanted to contribute to your RRSP yourself, you can fill out this form. This can be done for lump sum contributions or preauthorized transfers into your RRSP. You have to do this every year and right now is a good time to do it for 2011. CRA will send a letter to you (which you give to your payroll people)directing your payroll to reduce tax deductions at source.


http://www.cra-arc.gc.ca/E/pbg/tf/t1213/


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## Eclectic12

DavidJD said:


> True. I am wondering if the advantage is any greater than that. She would lose the ability to direct the funds anywhere else, RESP etc. She may find it better to put only some into an RRSP.
> 
> There is also growth/income that it would generate in the RRSP in a larget amount.
> 
> However I am assuming that the employer can indeed direct the gross directly into her RRSP...


She does lose the ability to direct the funds to an RESP or put them in a non-registered account or to spend them.

However, if the employer is offering to send the funds to an RRSP, likely they have the paperwork/experience to be able to contribute the gross amount to the RRSP.

I used to do this with small amounts of overtime - why take the tax hit & get small amounts after-tax when the full amount could start working for me. It's amazing how it added up quickly.

Note that if she is considering RESP - she can ask the employer about whether the RESP is an additional option. Some places I've worked would allow it but to minimize the work on their staff, would require the full amount to a single account (i.e. one transaction).

Good luck.


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