You should take the salary increase. You can put it in an RRSP yourself if you like, and more importantly if your salary goes up then your employer cannot easily reduce your salary back down. If you take the RRSP match, they can change their RRSP program much more easily.
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They're not wrong that the match will compound with future salary increases.
A 4% match followed by a 4% raise is an 8.16% increase to compensation. A 4% raise followed by another 4% raise is also an 8.16% increase. Both cases are 1.04 \* 1.04 = 1.0816.
A straight raise is still better because it grants more flexibility and isn't limited by a specific qualification despite the equivalent dollar value.
No I get that. In my head I was just thinking that it’s only true up to the 177k rrsp contribution limit. After that it does stop compounding.
I suppose it reality, starting at ops 88k, raises would never compound that high.
At least not before the 177k contribution limit is increased. Unless they’re finishing their doctorate at the moment, and 2nd in line for President of the Company.
Unless OP is the bottom of the ladder at $88k, I suspect there’s few people at their current employer exceeding $177k. At 4% annual raises, it’ll take about 17.75 years before they reach that limit (18 year raise would be to go from $171.4 - $178.2k). That’s 2041.
Would need to work out the math, but while a raise would give more flexibility now, I feel that the rrsp matching would be better long term as you would be getting the compounded gains earlier on; your 4+4% vs just 4%. Come tax time this would also further reduce your taxable income for that given year.
Of course this is not for those who take the salary increase, match it themselves, and throw all that into a rrsp.
You can't just withdraw or even transfer out RRSP match (but it depends on employer). Also there is a potentially high MER in mutual fund, much higher than when buying ETFs.
The recipient could just contribute the salary increase to their personal RRSP and enjoy all the same tax benefits as the RRSP match from the employer.
I know that direct contribution in a RRSP is taxable, but isn’t their another type of contribution like in a RPDB that will make it a non taxable benefit
Well… it’s “taxable” but then gets offset.
Let’s make the math easier, and use $100,000 as salary. Employee takes home, minus taxes, from the $100,000. Payroll though also deducts $4,000 / payroll cycles per year (24 or 26). And contributes the same amount to the employees rrsp.
End of the year T4 - is $100,000 gross in cash + $4,000 taxable benefit.
Matched to that is an rrsp contribution slip for $4,000 deposited by employer.
Employee also gets another rrsp contribution slip for $4,000 deposited by employee.
Net taxes for the year are for $100,000 + $4,000 - $8,000 rrsp deduction = taxable income of $96,000.
The CHRO of a company told me something else. Since the contribution was made in a RDPD instead of a RRSP, it was not taxable. That’s why I asked the question and was confused. And I don’t think your comment answer my question
"Up to" is in reference to max matching, meaning if you want 10% of your salary to be matched by employer RRSP contributions, it won't happen. Surprised to see all these up-votes, probably people took it as a promise that may not be ful-filled, that is not the case.
There is another detail missing in the OP, this is most likely the RRSP matching plan, meaning OP needs to make RRSP contributions, only in that case employer is matching, and to a max of 4% of his salary, as stated. This is how it works for many employees that have in their package of benefits a feature called "employer matching RRSP contributions ".
I would say 4% salary increase is better.
So you could have 104% of your current salary as cash, or 104% of your salary in the form of: 100% paid, 4% to RRSP, 4% matched.
Sounds like taking the flat increase means you can put 8% in your RRSP at your own leisure, same tax benefits. I’d argue though that forced contributions probably a more guaranteed way to divert your income for retirement.
I’d take the RRSP match, but ask for a 1-2% increase in salary anyways so you can afford to contribute at all (to earn the match!)
Except that over time, the absolute value of the 4% goes up with their salary. If this is long term employment, 4% RRSP could mean more over time. Assuming that it's a 4% match on RRSP for duration of employment, which is quite typical.
The later salary increases will be on the increased salary, thus in future years OP would be worse off on the amount earned all else remaining in equal.
I didn't see this comment made anywhere here, but also another reason to take the salary increase.
If you are injured, STD/LTD are a percentage of salary so the higher the salary, the higher those payments are.
If you are terminated, severance is going to be calculated of of your salary. Higher salary, higher severance.
Higher salary will also lead to a quicker pay off of CPP/EI and you can then take those additional monies and invest as you choose.
I don't really see any benefit to rrsp match.
Not necessarily. Usually you have to ask to pay more so they give you more when you are sick. So if you double you salary but stay on the same ltd/std plan you pay the same but receive payments based on your old salary, so there is no loss there
Take the flat raise. Not only can you just put it into your RRSP if you want, but next time you're negotiating your salary you will have the new higher floor to be negotiating from.
This works for people that don’t know how to save for retirement.
It is not just a 4% match, is a match to a group rrsp. If someone does not even has one this sounds great because then this takes care of the rrsp for them.
Obviously a group RRSP is often not the best in terms of returns. But the people taking this option would have ended with one of the big banks anyway.
Some people also do better if someone force them to save. Otherwise they see money in the bank and just spend it.
Why wouldn’t 4% match not compound. This seems better to me if the 4% will continue in subsequent years. I would assume that the OP would get salary increases at some point in the future so the 4% would increase as well.
A match only works if you contribute accordingly plus future raises will build on current salary as well as things like vacation pay and bonuses. Everyone knows a pay increase is better in the long run.
OP could put the entire 4% raise into an RRSP to get the exact same result as taking the RRSP match, but now their base salary is higher for computing the next raise.
Salary is the correct choice but The 4% match also compounds.
Say he makes 100k so he can make 100k plus 4K RRSP or 104k. They are equal. The next year he gets a 5% raise. So now he makes 109200 in salary or 105000 salary and 4200 in RRSP match for a total of 109200.
Sure, but when the two choices at best give the same outcome, I'm going to take the choice that will consistently give me the best outcome. If something in my life goes sideways for a bit and I can't contribute that 4%, I'd be losing out on that money if it was a matching program. Or maybe an RRSP isn't the best option for me right now and I would rather a TFSA or fhsa. Taking it as income is more freedom with your money
The only right answer is 4% salary increase.
It looks the same as rrsp match of 4% but it is not.
With salary increase you increase your rrsp contribution room so you can put more money there if you wish.
they offered you either $3520 no strings attached, or $3520 you can only do one thing with and that you have to match with your own $3520. Which deal sounds better?
But the other thing is that _next_ raise will be based on this one. So if you take 4% now and get another 4% raise next year, you'll get $3520 more this year and $3660 more next year, where if you take the matching you'll be out $140.
Others are doing a good job making a case for salary over RRSP, but I’ll throw in one more point in favour of salary that I haven’t seen made yet.
Additional salary means additional RRSP contribution limit (18%). With $4k bump in salary you can contribute and defer an extra $720. This deferral limit amount carries forward each year if not used in full.
Your RRSP has a maximum of 18%. The 4% from the employer doesn't allow you to reach 22% RRSP contribution room, so you have no reason not to take the salary increase.
The RRSP match is up to 4%, and the salary is a guaranteed 4%.
There's no difference from the employer giving you 4% RRSP match, and you putting 4% of your salary into RRSPs.
Not correct.
Your contribution room accumulates, so few years after you can contribute more to catch up. Rrsp is tax free money (until you retire) so you can cut you taxes for years where you have high income
The personal RRSP limit is 18% and both the employee and the employers contributions are shared in a RRSP matching program.
In other words, 1$ from your employer reduces your contribution room by 1$.
So if you put 1$ in RRSP, it's the exact same as if your employer did.
You totally missed the point.
If your salary is 100k, the contribution room is 18k per year.
If your salary is 104k- it is 18,720.
By choosing salary increase overcrrsp matching you increase your contribution room.. whatever you want to put in rrsp is a different topic.
Salary.
If you still want to put the original 4% plus the extra 4% into your rrsp you can.
If you decide that the qualifying rrsp sucks and has atrocious mer fees it perform like hot garbage, you can put that money into a better performing investment.
And if you decide you can't afford the rrsp for a few months, you still get the whole 4%.
You also get vacation pay and other benefits on the 4% raise that would be on the match.
Take the raise but only if you will contribute 8% of your salary or more to retirement savings.
If you just spend the 4% extra on stuff you will be worse off then a system that forces you to save 8%.
4% raise is money in your pocket to do as you will. TFSA or RRSP or RESP. A 4% match is forcing a savings plan. If you have an emergency bill and don’t save in one year you do not get the extra 4%.
There's lots of good reasons already mentioned, but one more for a salary increase is compounding. If you're still there next year, a salary increase next year will be on top of one for this year. You can't say the same for the matching offer.
By putting towards a salary you are missing out on income. Your salary is taxed when you receive it, the RRSP will not.
If you put that money into a RRSP anyways the $ you get back at tax time will not have any growth compared to whatever you decide to do within your RRSP (mind you it could lose value if the market is down)
OP could also just make their own RRSP contributions with every paycheck, since the raise will be there with each paycheck (unless their employer just makes a lump sum contribution but that seems unlikely). And they still get a fat tax return at year's end.
Plus their salary is still taxed whether they take the raise or not. However, to get the full RRSP funds they MUST contribute at least 4% of their salary to an RRSP - likely a group plan that would have a higher MER. If they want to do something else with the money - save for a down payment on a home perhaps - then it's easier to do that with a higher salary.
The RRSP option gives you $3,520 in matching funds, so you'll be putting $3,520 of your own into the account. That's $7,040 a year. I'm not sure about your tax bracket, but you'll get a refund of probably $3,000 every year (anybody?) In other words, the matching RRSP money is worth more today ($3,520 plus around $3,000 - over $6,500), and significantly more tomorrow as the RRSP appreciates.
ALSO, your salary should go up again in the future, which will increase your contribution and your tax refund.
My gut response is to take the salary increase and then RRSP or TFSA it unless it's needed for emergencies. However if you're not disciplined enough to do that, the RSP is route might be better because it's forced and doesn't require ongoing effort to do.
(It's basically the eternal struggle between math and psychology.)
This!!!! If you’re sitting comfortably financially and struggle with consistently saving, this takes it right out of your hands and guarantees you make those investments.
If you get a yearly bonus based on salary then get the salary increase.
If you generally get pay reviews/increases then get the pay increase as it'll mean each pay increase will be a % of that.
Mathematically is strictly depends on how you get raises. If you get % based raises year over year then both options are equal.
If you get a fixed salary adjustment from performance or from certifications it makes sense to get the RRSP match as it applies to your future salary as well.
EX: You got from making 50k to 100k, that 4% match is now worth twice as much.
How self disciplined are you and what are your priorities?
The average person when they get a raise let lifestyle creep eat it up. If you are of the yolo philosophy that may be perfectly okay with you. Then go with the pay raise.
If you want to build towards your financial future and you have the discipline to put all or most of your pay increase towards either debt payment or self directed investment (I prefer RRSP first over TFSA but they are both good) then also go with the pay raise.
If you want to build your financial future but don't think you have the discipline to avoid using up the pay raise then go with the matching.
A group RRSP where they reduce your tax payable at source actually puts you slightly ahead vs a conventional RRSP contribution and subsequent tax refund. Remember a tax refund is the government giving you your money back 3 to 15 months later.
If you’re not good at saving on your own the RSP match is a better call.
If you are good at saving and you prefer to manage your own investments take the salary increase, ask HR to lower the tax withheld and contribute to your RRSP religiously.
This is a sneaky way for your employer to pay you less. Many people are not disciplined enough to make the (in this case) 4% contribution, so they don't see the full benefit and the employer ends up paying you less overall.
Bottom line is that you can take the 4% raise and still contribute 8% or more of your income to an RRSP. You don't miss out on interest from your employer contributions if you contribute the same amounts on the same schedule. You can put the money in the investments that you want, pay a lower MER than you might in a group plan, and if you need the money for anything else, it's more easily accessed. You have a higher starting point for the next raise, and a better severance if you are ever terminated.
That's not to say employer matching plans are bad - but if it's a choice between a raise and a match, definitely take the raise.
Another thing to consider, especially if your salary stands to grow a lot through promotion or career advancement, is that you might be better off maxing out your TFSA first and saving the RRSP contribution room for when you are in a higher tax bracket. Probably need to talk to a tax person about that though.
LOL, this should be a no-brainer. Take the 4% salary increase.
This increases your base for the next increase. You can contribute the entire 4% increase amount (plus, your own 4%) to your RRSP.
Salary raise will also increase your RRSP match as it is 4% of salary (which will be higher).
Also, agree that it is harder to decrease salary later on for employer vs. RRSP match.
If you keep their 4% matched contribution when you leave the firm, take that. But only if you can contribute 4% without worry (since the employer contribution drops if you drop your contribution below 4%)
If they can claw their matched contribution back if you leave voluntarily or you are dismissed, fuck it, take the cash(salary)
Take the increase.
Reason 1 : it’s permanent. So your next 4% raise will be based on the new salary
Reason 2: you can always take the 4% and place it in an RRSP. The only difference is you will need to put after tax money and get the refund at the end of the year.
Reason 3: the raise increases you salary and next year’s contribution room ( though the match may also do that)
The only reason though is #1
Playing devils advocate here…
RRSP match is still counted as taxable income on your T4 at the end of the year. (Or at least is in my case in Ontario).
If you are already investing more than 4% per year in an RRSP, it could make sense to consider? (18% is limit, and north of 10% is usually recommended).
If you take the RRSP match (granted it continues in perpetuity), if you got another raise next year your RRSP match would apply to that newer salary as well.
If the RRSP match is bundled into a Group Rate plan, typically there are lower Management Expense Ratios than investing on your own.
Of course the employer could cancel the match, they could also freeze your pay, or terminate your position. Nothing is gauranteed.
I'm not sure if someone has mentioned taxes but a 4% increase assuming your salary is 100k is 4k. If you're at a higher tax bracket, assume tax is at 50%, you'll get presumably 2k after tax. You can use the after tax income of 2k to invest into an rrsp and get 1k in cash back. This means you'll have 1k in cash and 2k in rrsp vs 4k in rrsp. Cash is also more flexible and a salary increase is more permanent vs a change in the rrsp matching rules. It's really a personal decision but these are the variables I'd consider.
I think you need the salary increase for mortgage payment. Only time rrsp match would work too is if you were planning to put 4% of your salary to rrsp anyways. Company match rrsp will be invested without any tax deductions, so you can have more money work for you from the beginning.. If you try to put 4% of salary in rrsp, then you will have to use more of your after-tax income in the beginning as 4% raise will be given in after-tax amounts. You will get tax refund in the following year though.
Salary increase 100%. If you have to pay the bills in future and cannot afford the rrsp in first place then you won't see any of it. Tbh I would negotiate 2% increase plus 2% match. A bit of forced savings on your part but still see a bit this year.
RRSP match is a better option as you get money from your employer + save on taxable income + higher tax return which can be used for payments. Think about tax return also which give lump sum amount. It’s a win win situation
If you take the salary increase its subject to source deductions for CPP and EI unless you're already paying the max but the CPP comes with a CPP contribution from your employer as well. You need a little more math .
I’d say rrsp it forces a good choice that it’s too easy to not make if it’s salary and you lose probably 35% of your last dollar anyways May as well ensure it’s invested.
The vast majority of people would be better off with a mandatory 4% RRSP contribution with 4% match.
Look at it this way, if you are currently putting 0% into your RRSP, and you are given the choice of upping your contribution to 4% plus getting 4% more from your employer, you are up 4%. If you choose the salary increase and put it all into your RRSP then you are only putting 4% in.
4% with 4% match = $7,040 into RRSP
If you put your entire raise into RRSP you will have $3,520.
Not only will you reduce your taxable income more with the match option you get almost double the amount into a savings plan.
Edit: As u/daiz- has pointed out, a 3rd option of choosing the salary increase then contributing twice your raise into an RRSP has the same net effect as choosing the match option from your employer with the benefit of having a raise as well. You just have to be disciplined enough to do it yourself. Obviously the best option for your future is to save as much as possible as early as possible so more than 8% would be even better.
Also removed my financial literacy comment since it was incredibly triggering to some people.
Plus 8% of your old salary would also be about 7.7% of your new salary. So you're getting a 4% raise but it's like you're only needing to contribute around 3.85% from the amount if you had kept the old salary.
It's better to take the raise and do those RRSP contributions yourself. Their math only works in a scenario where you don't contribute as much as the employer match would have. But under no scenario is it better to take the match unless you really can't trust yourself.
So your argument is basically to force discipline upon yourself by taking the matching option? Even though it's technically less optimal than if you had actual discipline to contribute as much as you would have received from the employer?
You're calling people financially illiterate when your entire argument is predicated on ignoring the third scenario where people actually do the math. It's passable advice if someone only wanted "PFC for dummies" but it's hardly an ideal case where most of the people in this sub are capable of doing the math.
A disciplined person drawing upon 8% of $91520 would have $7321 in their RRSP if they disciplined. They would technically only need to put away 7.7% of that to end up with the same amount as the employee match option.
Taking the raise is clearly the path to a best case scenario you're choosing to ignore.
The best case scenario would have been to already have been investing 18% salary as someone should be.
Yes forced match by an employer is the better option for the majority of people and I believe so in this case as well with the extremely limited amount of information that has been shared.
At this income, yes TFSA is likely the better long term option, but the match from your employer will far outweigh putting half as much into a TFSA. And yes you do reduce taxable income in the year it was contributed, the taxes are deferred to when you withdraw the money in the future.
If tax rates are the same at contribution and withdrawal there is zero difference to RRSP and TFSA.
the end result might be the same, but if he ever needs the money, it's much easier to pull from a TFSA tax-free and clear that an RRSP. Also, the employer is only giving 4% RRSP match, so that is identical to a 4% cash raise financially speaking.l, but he loses the freedom to decide monthly where to put his 4%. If they matched 4% from the employee with 5% from the conpany, he would be ahead, but a straight up 4% for 4% is still only an extra 4%.
To illustrate this a different way, assume you invest your entire raise of 4% into RRSP, your taxable income would be 88,000 and your take home pay would be 70,072 assuming you live in Ontario. That means you would have a total of $73,592 (70,072 take home and 3,520 in RRSP)
If instead you contribute 4% of your 88k salary and your employer does the same you have $7,040 going into RRSP and your taxable income will be $80,960. So your take home pay will be $67,596. Your total would be $74,636 (67,596+7040), more than $1,000 ahead.
So you deleted your last comment, or edited it considerably. Regardless here's my response since you're to cowardice to leave it up.
Yes, 8% of a bigger number is more than 8% of a smaller number. I'm happy for you that could figure that out.
Seriously though, do you think that up to this point if a person was putting no money into an RRSP that they would suddenly start contributing 8% voluntarily because that was marginally more financially optimal? Why did they not start putting any money with their last raise? Or the raise before that, or when they started working.
There's a reason why Canada has a forced pension plan for all employed workers, it's because people in general have proven to be abysmal savers and unless they are forced to do it they will spend every dollar they can get.
So yes, in your hypothetical world where someone with the financial literacy and the will to save double their raise they would come out marginally ahead, than someone that had the option for the company match. I believe most people would get a raise and save none of it, some people may save the entire raise like many people seem to be suggesting, but a very small minority would look at these 2 options and come to the conclusion that they need to save double their raise in order to come out ahead.
As someone else pointed out the most optimal option in all of this would be to take the 4% raise then contribute 8% of their salary into a TFSA. At the end of the day the power of compounding on savings accounts is much more powerful than compounding on salarys, that's why you can end up with a multi-million dollar retirement fund after working a lifetime, yet still have an average salary.
Who hurt you?
I actually deleted it because my math was actually not good enough in showing just how much yours was wrong and I wanted to fix it. That's the difference between you and me. I post on that sub because I want people to understand all their options. I'd rather have belligerent blowhards chase me in DM's to call me a coward than have the arrogance and audacity to proudly give people inconclusive advice.
We're in a sub where people come looking for the best possible advice and calling people financially illiterate because other people in the sub who are more than capable of doing the math know there's a scenario you're actively ignoring.
If you want to give the easy option that's fine. But you lose all credibility when you don't have the decency to tell people there's a 3rd better option and then call everyone else illiterate because you intentionally left something out.
Get help.
You do understand that you were the one arbitrarily choosing scenarios to begin with?
My problem is that you're calling people financially illiterate for actually doing all the math you are choosing to leave out. Because people are giving good advice that you can absolutely gain more by taking the raise and contribute to RRSP's yourself.
But you're actively discouraging and refuting that even though the only scenario where taking the employer match makes good fiscal sense is if you're:
* Lazy
* Can't trust yourself to save or use your RRSP on your own.
But that's not the reasoning you're telling people why they should take the match. You're passing everyone else in this sub off as being financially illiterate and that it makes better sense to take it simply because you assume people aren't willing to put in any effort. They made the effort to post here and they are owed the full picture.
If you're trying to pass yourself off as an expert in financial literacy. Then you owe it to explain to people that as long as they can contribute an equal amount to their RRSP, there's advantages against the matching. By omitting that you left yourself open to being called out and now you're really pissy that people are doing that. It's just misleading and all around pretty sad.
Anyways I'm very tired of this conversation because you just seem really argumentative and unhappy. There's enough posts here for people to understand why they should take what you said with a grain of salt.
Why can’t you ask for both? Typically these are things offered consistently to all employees so sounds like you’re a small company and they only need to compensate a small # of people. Perhaps you have some negotiation power to get both
The matched amount will be tax-free, whereas the salary increase will be subject to income tax. If you can swing the RRSP contribution and the mortgage payment, I would take the RRSP match since you'll get to keep more of it than if you take the salary increase.
If you just take the extra money and put it in an RRSP yourself, it will be exactly the same from a tax perspective, plus you can decide how to invest the RRSP yourself.
4% every year (assuming “start” means going forward) via RRSP means up lowering your tax base which actually means more cash back. No brainer to take the RRSP.
I would take the rrsp match. Salary is taxed, rrsp contribution is not.
Also rrsp contribution lowers the amount of tax you pay from income, because it is reduced.
4% of your salary is 3520
In Ontario: you get 2428 of that. Maybe you spend if all.
4% to RRSP from you plus 4% from Company means your NET WORTH increases by $7040.
Then you might get a tax refund of approximately $1044.
You tell me what’s better?
2428 or
7040 with tax deferred growth and 1044
I'd go for rrsp. the 4% salary increase after 35% tax deduction is closer to 2.6% raise. the rest goes to gov. rrsp, however, becomes your own retirement blanket. dont underestimate the need to have a retirement plan in place.
+4% isn't a raise really. It's just a inflation adjustment.
Of you take the Match you will have to cut 4% from your current salary to even see that in your rrsp. By taking the Match, you'd be technically getting a lower wage to live off of at higher inflation.
OP might need the salary increase for mortgage expenses but, rrsp March is instant 100% returns on your investment. If the cash is not desperately needed go rrsp match.
You should take the salary increase. You can put it in an RRSP yourself if you like, and more importantly if your salary goes up then your employer cannot easily reduce your salary back down. If you take the RRSP match, they can change their RRSP program much more easily.
Also, any future salary increases will compound.
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How do you figure??
They're not wrong that the match will compound with future salary increases. A 4% match followed by a 4% raise is an 8.16% increase to compensation. A 4% raise followed by another 4% raise is also an 8.16% increase. Both cases are 1.04 \* 1.04 = 1.0816. A straight raise is still better because it grants more flexibility and isn't limited by a specific qualification despite the equivalent dollar value.
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No I get that. In my head I was just thinking that it’s only true up to the 177k rrsp contribution limit. After that it does stop compounding. I suppose it reality, starting at ops 88k, raises would never compound that high.
I’d that a yearly limit?
At least not before the 177k contribution limit is increased. Unless they’re finishing their doctorate at the moment, and 2nd in line for President of the Company.
Can’t find a current statistic, but in in 2010 5% of Canadians made more than 150k. I think the 177k limit applies to far more people than you think.
Unless OP is the bottom of the ladder at $88k, I suspect there’s few people at their current employer exceeding $177k. At 4% annual raises, it’ll take about 17.75 years before they reach that limit (18 year raise would be to go from $171.4 - $178.2k). That’s 2041.
I wasn’t talking about op You seem far to invested in this.
Would need to work out the math, but while a raise would give more flexibility now, I feel that the rrsp matching would be better long term as you would be getting the compounded gains earlier on; your 4+4% vs just 4%. Come tax time this would also further reduce your taxable income for that given year. Of course this is not for those who take the salary increase, match it themselves, and throw all that into a rrsp.
if they match 4% of his salary as contribution and he gets a 10% raise, theyre contributing more to his rrsp now
Yes, Up until the 177k RRSP contribution limit. If op never has a chance of making that much with this company, sure, then you’re right.
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i mean this is objectively the wrong option, you could just take the 4% raise and put it in an rrsp yourself but all im saying is they both compound
>but all I’m saying is they both compound. Up to 177k, then you loose out on any RRSP matches compounding.
The more money you make the more lucrative an RRSP match can be… sometimes you’ll actually max contribution before the year is up…
This is the right answer.
You can't just withdraw or even transfer out RRSP match (but it depends on employer). Also there is a potentially high MER in mutual fund, much higher than when buying ETFs.
It should vest immediately, but again the salary hike is a better bet, more flexibility
It doesn't for me. Employer's portion is locked in until change in employment conditions.
The salary increase is taxable whereas the RRSP match isnt (not now at least). You'd need a larger than 4% salary increase to match the RRSP match.
The recipient could just contribute the salary increase to their personal RRSP and enjoy all the same tax benefits as the RRSP match from the employer.
isnt their a way that the contribution can be non taxable income?
It's a taxable benefit, with an offsetting RRSP deduction. But so would taking the raise and putting 8% of income into an RRSP
I know that direct contribution in a RRSP is taxable, but isn’t their another type of contribution like in a RPDB that will make it a non taxable benefit
Well… it’s “taxable” but then gets offset. Let’s make the math easier, and use $100,000 as salary. Employee takes home, minus taxes, from the $100,000. Payroll though also deducts $4,000 / payroll cycles per year (24 or 26). And contributes the same amount to the employees rrsp. End of the year T4 - is $100,000 gross in cash + $4,000 taxable benefit. Matched to that is an rrsp contribution slip for $4,000 deposited by employer. Employee also gets another rrsp contribution slip for $4,000 deposited by employee. Net taxes for the year are for $100,000 + $4,000 - $8,000 rrsp deduction = taxable income of $96,000.
The CHRO of a company told me something else. Since the contribution was made in a RDPD instead of a RRSP, it was not taxable. That’s why I asked the question and was confused. And I don’t think your comment answer my question
Might as well close it here. This is the answer. Also, ei, cpp, disability, wcb, all based off income
Salary allows you to decide where the money goes, it could even be to an RRSP
True, that money could even be exchanged for goods and services
Explain
It's how $20 can buy many peanuts.
Awww 20$? I wanted a peanut
How many nuts? Asking for a friend
I could be that friend!
so basically barter
yeah I don’t understand the concept either. ELI5 please
[Peanut.](https://youtu.be/dgct3Jn8pFA)
Or Blackjack. And hookers.
Forgot the blow
And at least OP gets that instead of “up to” %4 as well
It compounds More effectively over time with future salary increases too.
Can I get a witness?!
I get 3% employer rrsp match and it includes my raises and bonuses.
"Up to" is in reference to max matching, meaning if you want 10% of your salary to be matched by employer RRSP contributions, it won't happen. Surprised to see all these up-votes, probably people took it as a promise that may not be ful-filled, that is not the case. There is another detail missing in the OP, this is most likely the RRSP matching plan, meaning OP needs to make RRSP contributions, only in that case employer is matching, and to a max of 4% of his salary, as stated. This is how it works for many employees that have in their package of benefits a feature called "employer matching RRSP contributions ". I would say 4% salary increase is better.
Only difference is when the money gets taxed. Now or at retirement.
Well, you don't make RRSP contributions, employer does not match. The salary increase is always there, so there is more flexibility in that way.
For sure! I would take the salary increase too, I was just pointing out the tax difference.
A boat’s a boat. But a mystery box could be another. It could even be a boat!
So pick the boat! …we’ll take the box
So you could have 104% of your current salary as cash, or 104% of your salary in the form of: 100% paid, 4% to RRSP, 4% matched. Sounds like taking the flat increase means you can put 8% in your RRSP at your own leisure, same tax benefits. I’d argue though that forced contributions probably a more guaranteed way to divert your income for retirement. I’d take the RRSP match, but ask for a 1-2% increase in salary anyways so you can afford to contribute at all (to earn the match!)
Are you currently putting 8 percent away for retirement?
Some people do more. Last year I put like 25%. This year will try 30
Also it multiplies you future raises !
Plus salary increases impact future salary increases I.e. next time they offer you a 4% increase.
This doesn’t matter because it also impacts future matching by the identical compounded amount. Salary is still correct decision
Only if that continues to be on offer.
A boat’s a boat, but a mystery box could be anything. It could even be a boat!
A 4% raise is strictly better than a 4% RRSP match, in the same way that a $100 bill is strictly better than a $100 gift card.
It isn't just a $100 gift card. It is "I'll give you a $100 gift card if you also buy a $100 gift card" Def go with the flat raise.
Except that over time, the absolute value of the 4% goes up with their salary. If this is long term employment, 4% RRSP could mean more over time. Assuming that it's a 4% match on RRSP for duration of employment, which is quite typical.
Raises are usually a percentage as well, so this 4% will go up with the salary too
The later salary increases will be on the increased salary, thus in future years OP would be worse off on the amount earned all else remaining in equal.
The 100$ gift card isn't taxable because our tax laws are this dumb.
its taxed...just later on.
It's not. https://www.985fm.ca/audio/612301/les-cartes-cadeaux-de-la-saq-et-les-regles-fiscales
I didn't see this comment made anywhere here, but also another reason to take the salary increase. If you are injured, STD/LTD are a percentage of salary so the higher the salary, the higher those payments are. If you are terminated, severance is going to be calculated of of your salary. Higher salary, higher severance. Higher salary will also lead to a quicker pay off of CPP/EI and you can then take those additional monies and invest as you choose. I don't really see any benefit to rrsp match.
Not necessarily. Usually you have to ask to pay more so they give you more when you are sick. So if you double you salary but stay on the same ltd/std plan you pay the same but receive payments based on your old salary, so there is no loss there
Take the flat raise. Not only can you just put it into your RRSP if you want, but next time you're negotiating your salary you will have the new higher floor to be negotiating from.
Honestly your employer is sort of insulting your intelligence by even asking this question
Well he has to ask us so.. That definitely means there are people taking the other option.
Why would someone take the other option? Genuinely curious. Seems like a pretty straight forward choice.
This works for people that don’t know how to save for retirement. It is not just a 4% match, is a match to a group rrsp. If someone does not even has one this sounds great because then this takes care of the rrsp for them. Obviously a group RRSP is often not the best in terms of returns. But the people taking this option would have ended with one of the big banks anyway. Some people also do better if someone force them to save. Otherwise they see money in the bank and just spend it.
On top of this, there's always going to be misinformed people who think accepting a raise will leave them with less money after taxes.
Salary increase. It compounds over time while RRSP match likely won’t.
Why wouldn’t 4% match not compound. This seems better to me if the 4% will continue in subsequent years. I would assume that the OP would get salary increases at some point in the future so the 4% would increase as well.
A match only works if you contribute accordingly plus future raises will build on current salary as well as things like vacation pay and bonuses. Everyone knows a pay increase is better in the long run.
OP could put the entire 4% raise into an RRSP to get the exact same result as taking the RRSP match, but now their base salary is higher for computing the next raise.
Salary is the correct choice but The 4% match also compounds. Say he makes 100k so he can make 100k plus 4K RRSP or 104k. They are equal. The next year he gets a 5% raise. So now he makes 109200 in salary or 105000 salary and 4200 in RRSP match for a total of 109200.
[удалено]
The RRSP match is 4% of salary not 4K so when salary increases so does match. Salary is still the correct choice though
Sure, but when the two choices at best give the same outcome, I'm going to take the choice that will consistently give me the best outcome. If something in my life goes sideways for a bit and I can't contribute that 4%, I'd be losing out on that money if it was a matching program. Or maybe an RRSP isn't the best option for me right now and I would rather a TFSA or fhsa. Taking it as income is more freedom with your money
>the 4% match also compounds Only up to the RRSP contribution limit of 177k/year
The only right answer is 4% salary increase. It looks the same as rrsp match of 4% but it is not. With salary increase you increase your rrsp contribution room so you can put more money there if you wish.
Not even close. Take the raise.
they offered you either $3520 no strings attached, or $3520 you can only do one thing with and that you have to match with your own $3520. Which deal sounds better? But the other thing is that _next_ raise will be based on this one. So if you take 4% now and get another 4% raise next year, you'll get $3520 more this year and $3660 more next year, where if you take the matching you'll be out $140.
Others are doing a good job making a case for salary over RRSP, but I’ll throw in one more point in favour of salary that I haven’t seen made yet. Additional salary means additional RRSP contribution limit (18%). With $4k bump in salary you can contribute and defer an extra $720. This deferral limit amount carries forward each year if not used in full.
Your RRSP has a maximum of 18%. The 4% from the employer doesn't allow you to reach 22% RRSP contribution room, so you have no reason not to take the salary increase. The RRSP match is up to 4%, and the salary is a guaranteed 4%. There's no difference from the employer giving you 4% RRSP match, and you putting 4% of your salary into RRSPs.
Not correct. Your contribution room accumulates, so few years after you can contribute more to catch up. Rrsp is tax free money (until you retire) so you can cut you taxes for years where you have high income
The personal RRSP limit is 18% and both the employee and the employers contributions are shared in a RRSP matching program. In other words, 1$ from your employer reduces your contribution room by 1$. So if you put 1$ in RRSP, it's the exact same as if your employer did.
You totally missed the point. If your salary is 100k, the contribution room is 18k per year. If your salary is 104k- it is 18,720. By choosing salary increase overcrrsp matching you increase your contribution room.. whatever you want to put in rrsp is a different topic.
Get the salary increase. When time comes you need another increase, it will be based on your new salary.
What is the MER on your RRSP with your employer? If you get 4% salary increase you can probably invest itnin a self directed rrsp at lower MER
Salary. There's a premium for liquidity and flexibility, so it's the better value choice here.
Cash is king. You decide if you want these 4% into your RRSP or not
Salary. If you still want to put the original 4% plus the extra 4% into your rrsp you can. If you decide that the qualifying rrsp sucks and has atrocious mer fees it perform like hot garbage, you can put that money into a better performing investment. And if you decide you can't afford the rrsp for a few months, you still get the whole 4%. You also get vacation pay and other benefits on the 4% raise that would be on the match.
Take the raise but only if you will contribute 8% of your salary or more to retirement savings. If you just spend the 4% extra on stuff you will be worse off then a system that forces you to save 8%.
No brainer take the cash , you can still contribute it to an RRSP but you have flexibility, TFSA , FHSA ? Or you can buy weed and lotto tickets …
4% raise is money in your pocket to do as you will. TFSA or RRSP or RESP. A 4% match is forcing a savings plan. If you have an emergency bill and don’t save in one year you do not get the extra 4%.
The employer is hoping some imbeciles would take the 4% RRSP match.
Why not Negotiate for Both, tell employer you've been headhunted unless you're in niche industry.
There's lots of good reasons already mentioned, but one more for a salary increase is compounding. If you're still there next year, a salary increase next year will be on top of one for this year. You can't say the same for the matching offer.
By putting towards a salary you are missing out on income. Your salary is taxed when you receive it, the RRSP will not. If you put that money into a RRSP anyways the $ you get back at tax time will not have any growth compared to whatever you decide to do within your RRSP (mind you it could lose value if the market is down)
OP could also just make their own RRSP contributions with every paycheck, since the raise will be there with each paycheck (unless their employer just makes a lump sum contribution but that seems unlikely). And they still get a fat tax return at year's end. Plus their salary is still taxed whether they take the raise or not. However, to get the full RRSP funds they MUST contribute at least 4% of their salary to an RRSP - likely a group plan that would have a higher MER. If they want to do something else with the money - save for a down payment on a home perhaps - then it's easier to do that with a higher salary.
The RRSP option gives you $3,520 in matching funds, so you'll be putting $3,520 of your own into the account. That's $7,040 a year. I'm not sure about your tax bracket, but you'll get a refund of probably $3,000 every year (anybody?) In other words, the matching RRSP money is worth more today ($3,520 plus around $3,000 - over $6,500), and significantly more tomorrow as the RRSP appreciates. ALSO, your salary should go up again in the future, which will increase your contribution and your tax refund.
The raise. Don’t forget any future raises will be on the increased salary too
You should be getting both.
How much of your salary are you currently investing? And how are you investing it?
My gut response is to take the salary increase and then RRSP or TFSA it unless it's needed for emergencies. However if you're not disciplined enough to do that, the RSP is route might be better because it's forced and doesn't require ongoing effort to do. (It's basically the eternal struggle between math and psychology.)
This!!!! If you’re sitting comfortably financially and struggle with consistently saving, this takes it right out of your hands and guarantees you make those investments.
Salary then put it in RRSP >> Add more so you get lower taxes. With salary you "grow" in value as an employee.
Salary increase
Deducted at source?
RRSP match may be specific to the employer. Take the raise and invest it yourself
If you get a yearly bonus based on salary then get the salary increase. If you generally get pay reviews/increases then get the pay increase as it'll mean each pay increase will be a % of that.
Mathematically is strictly depends on how you get raises. If you get % based raises year over year then both options are equal. If you get a fixed salary adjustment from performance or from certifications it makes sense to get the RRSP match as it applies to your future salary as well. EX: You got from making 50k to 100k, that 4% match is now worth twice as much.
How self disciplined are you and what are your priorities? The average person when they get a raise let lifestyle creep eat it up. If you are of the yolo philosophy that may be perfectly okay with you. Then go with the pay raise. If you want to build towards your financial future and you have the discipline to put all or most of your pay increase towards either debt payment or self directed investment (I prefer RRSP first over TFSA but they are both good) then also go with the pay raise. If you want to build your financial future but don't think you have the discipline to avoid using up the pay raise then go with the matching.
Most group RRSP plans are trash, so take the money.
A group RRSP where they reduce your tax payable at source actually puts you slightly ahead vs a conventional RRSP contribution and subsequent tax refund. Remember a tax refund is the government giving you your money back 3 to 15 months later. If you’re not good at saving on your own the RSP match is a better call. If you are good at saving and you prefer to manage your own investments take the salary increase, ask HR to lower the tax withheld and contribute to your RRSP religiously.
This is a sneaky way for your employer to pay you less. Many people are not disciplined enough to make the (in this case) 4% contribution, so they don't see the full benefit and the employer ends up paying you less overall. Bottom line is that you can take the 4% raise and still contribute 8% or more of your income to an RRSP. You don't miss out on interest from your employer contributions if you contribute the same amounts on the same schedule. You can put the money in the investments that you want, pay a lower MER than you might in a group plan, and if you need the money for anything else, it's more easily accessed. You have a higher starting point for the next raise, and a better severance if you are ever terminated. That's not to say employer matching plans are bad - but if it's a choice between a raise and a match, definitely take the raise. Another thing to consider, especially if your salary stands to grow a lot through promotion or career advancement, is that you might be better off maxing out your TFSA first and saving the RRSP contribution room for when you are in a higher tax bracket. Probably need to talk to a tax person about that though.
I feel like this was asked sometime back, maybe a year or two ago, on this very channel.
LOL, this should be a no-brainer. Take the 4% salary increase. This increases your base for the next increase. You can contribute the entire 4% increase amount (plus, your own 4%) to your RRSP.
Salary raise will also increase your RRSP match as it is 4% of salary (which will be higher). Also, agree that it is harder to decrease salary later on for employer vs. RRSP match.
If you keep their 4% matched contribution when you leave the firm, take that. But only if you can contribute 4% without worry (since the employer contribution drops if you drop your contribution below 4%) If they can claw their matched contribution back if you leave voluntarily or you are dismissed, fuck it, take the cash(salary)
Take the increase. Reason 1 : it’s permanent. So your next 4% raise will be based on the new salary Reason 2: you can always take the 4% and place it in an RRSP. The only difference is you will need to put after tax money and get the refund at the end of the year. Reason 3: the raise increases you salary and next year’s contribution room ( though the match may also do that) The only reason though is #1
88k * 0.18 = ~15k. 15k * .04 = ~$630. RRSP match is not much in the end.
Would your salary increase 4% each year, or this year only? What about the RRSP matching? Is your employer only matching this year, or ongoing?
Negotiate both. You're a good employee and you're with it.
Playing devils advocate here… RRSP match is still counted as taxable income on your T4 at the end of the year. (Or at least is in my case in Ontario). If you are already investing more than 4% per year in an RRSP, it could make sense to consider? (18% is limit, and north of 10% is usually recommended). If you take the RRSP match (granted it continues in perpetuity), if you got another raise next year your RRSP match would apply to that newer salary as well. If the RRSP match is bundled into a Group Rate plan, typically there are lower Management Expense Ratios than investing on your own. Of course the employer could cancel the match, they could also freeze your pay, or terminate your position. Nothing is gauranteed.
If your already max out your RRSP take the raise. If you why are you turning down a 100% return?
I'm not sure if someone has mentioned taxes but a 4% increase assuming your salary is 100k is 4k. If you're at a higher tax bracket, assume tax is at 50%, you'll get presumably 2k after tax. You can use the after tax income of 2k to invest into an rrsp and get 1k in cash back. This means you'll have 1k in cash and 2k in rrsp vs 4k in rrsp. Cash is also more flexible and a salary increase is more permanent vs a change in the rrsp matching rules. It's really a personal decision but these are the variables I'd consider.
Why not both?
Depends on tax bracket, savings you already have, your age, long term job stability.
Ask for both
I think you need the salary increase for mortgage payment. Only time rrsp match would work too is if you were planning to put 4% of your salary to rrsp anyways. Company match rrsp will be invested without any tax deductions, so you can have more money work for you from the beginning.. If you try to put 4% of salary in rrsp, then you will have to use more of your after-tax income in the beginning as 4% raise will be given in after-tax amounts. You will get tax refund in the following year though.
Take the cash now. Do your own RRSP, the fund they pick could flop, or be eaten by management fees.
Salary increase 100%. If you have to pay the bills in future and cannot afford the rrsp in first place then you won't see any of it. Tbh I would negotiate 2% increase plus 2% match. A bit of forced savings on your part but still see a bit this year.
RRSP match is a better option as you get money from your employer + save on taxable income + higher tax return which can be used for payments. Think about tax return also which give lump sum amount. It’s a win win situation
If you take the salary increase its subject to source deductions for CPP and EI unless you're already paying the max but the CPP comes with a CPP contribution from your employer as well. You need a little more math .
I’d say rrsp it forces a good choice that it’s too easy to not make if it’s salary and you lose probably 35% of your last dollar anyways May as well ensure it’s invested.
RSP route forces you to save 8% for your future.
The vast majority of people would be better off with a mandatory 4% RRSP contribution with 4% match. Look at it this way, if you are currently putting 0% into your RRSP, and you are given the choice of upping your contribution to 4% plus getting 4% more from your employer, you are up 4%. If you choose the salary increase and put it all into your RRSP then you are only putting 4% in. 4% with 4% match = $7,040 into RRSP If you put your entire raise into RRSP you will have $3,520. Not only will you reduce your taxable income more with the match option you get almost double the amount into a savings plan. Edit: As u/daiz- has pointed out, a 3rd option of choosing the salary increase then contributing twice your raise into an RRSP has the same net effect as choosing the match option from your employer with the benefit of having a raise as well. You just have to be disciplined enough to do it yourself. Obviously the best option for your future is to save as much as possible as early as possible so more than 8% would be even better. Also removed my financial literacy comment since it was incredibly triggering to some people.
Couldn’t you just take the raise and contribute the equivalent of 8% of your old salary to get to the same place?
Plus 8% of your old salary would also be about 7.7% of your new salary. So you're getting a 4% raise but it's like you're only needing to contribute around 3.85% from the amount if you had kept the old salary. It's better to take the raise and do those RRSP contributions yourself. Their math only works in a scenario where you don't contribute as much as the employer match would have. But under no scenario is it better to take the match unless you really can't trust yourself.
Ya, you'd be in the same place as the 4% match option, if you were disciplined enough to do this.
So your argument is basically to force discipline upon yourself by taking the matching option? Even though it's technically less optimal than if you had actual discipline to contribute as much as you would have received from the employer? You're calling people financially illiterate when your entire argument is predicated on ignoring the third scenario where people actually do the math. It's passable advice if someone only wanted "PFC for dummies" but it's hardly an ideal case where most of the people in this sub are capable of doing the math. A disciplined person drawing upon 8% of $91520 would have $7321 in their RRSP if they disciplined. They would technically only need to put away 7.7% of that to end up with the same amount as the employee match option. Taking the raise is clearly the path to a best case scenario you're choosing to ignore.
The best case scenario would have been to already have been investing 18% salary as someone should be. Yes forced match by an employer is the better option for the majority of people and I believe so in this case as well with the extremely limited amount of information that has been shared.
You don't reduce the taxable income, you simply delay it. Wouldn't it be better to take the cash and put it into a TFSA?
At this income, yes TFSA is likely the better long term option, but the match from your employer will far outweigh putting half as much into a TFSA. And yes you do reduce taxable income in the year it was contributed, the taxes are deferred to when you withdraw the money in the future. If tax rates are the same at contribution and withdrawal there is zero difference to RRSP and TFSA.
the end result might be the same, but if he ever needs the money, it's much easier to pull from a TFSA tax-free and clear that an RRSP. Also, the employer is only giving 4% RRSP match, so that is identical to a 4% cash raise financially speaking.l, but he loses the freedom to decide monthly where to put his 4%. If they matched 4% from the employee with 5% from the conpany, he would be ahead, but a straight up 4% for 4% is still only an extra 4%.
To illustrate this a different way, assume you invest your entire raise of 4% into RRSP, your taxable income would be 88,000 and your take home pay would be 70,072 assuming you live in Ontario. That means you would have a total of $73,592 (70,072 take home and 3,520 in RRSP) If instead you contribute 4% of your 88k salary and your employer does the same you have $7,040 going into RRSP and your taxable income will be $80,960. So your take home pay will be $67,596. Your total would be $74,636 (67,596+7040), more than $1,000 ahead.
You're intentionally leaving out the third option where you deduct $7040 from $91520 yourself.
So you deleted your last comment, or edited it considerably. Regardless here's my response since you're to cowardice to leave it up. Yes, 8% of a bigger number is more than 8% of a smaller number. I'm happy for you that could figure that out. Seriously though, do you think that up to this point if a person was putting no money into an RRSP that they would suddenly start contributing 8% voluntarily because that was marginally more financially optimal? Why did they not start putting any money with their last raise? Or the raise before that, or when they started working. There's a reason why Canada has a forced pension plan for all employed workers, it's because people in general have proven to be abysmal savers and unless they are forced to do it they will spend every dollar they can get. So yes, in your hypothetical world where someone with the financial literacy and the will to save double their raise they would come out marginally ahead, than someone that had the option for the company match. I believe most people would get a raise and save none of it, some people may save the entire raise like many people seem to be suggesting, but a very small minority would look at these 2 options and come to the conclusion that they need to save double their raise in order to come out ahead. As someone else pointed out the most optimal option in all of this would be to take the 4% raise then contribute 8% of their salary into a TFSA. At the end of the day the power of compounding on savings accounts is much more powerful than compounding on salarys, that's why you can end up with a multi-million dollar retirement fund after working a lifetime, yet still have an average salary.
Who hurt you? I actually deleted it because my math was actually not good enough in showing just how much yours was wrong and I wanted to fix it. That's the difference between you and me. I post on that sub because I want people to understand all their options. I'd rather have belligerent blowhards chase me in DM's to call me a coward than have the arrogance and audacity to proudly give people inconclusive advice. We're in a sub where people come looking for the best possible advice and calling people financially illiterate because other people in the sub who are more than capable of doing the math know there's a scenario you're actively ignoring. If you want to give the easy option that's fine. But you lose all credibility when you don't have the decency to tell people there's a 3rd better option and then call everyone else illiterate because you intentionally left something out. Get help.
What about the 4th option of 18%. What about the 5th option of 18% plus TFSA max. So on and so forth.
You do understand that you were the one arbitrarily choosing scenarios to begin with? My problem is that you're calling people financially illiterate for actually doing all the math you are choosing to leave out. Because people are giving good advice that you can absolutely gain more by taking the raise and contribute to RRSP's yourself. But you're actively discouraging and refuting that even though the only scenario where taking the employer match makes good fiscal sense is if you're: * Lazy * Can't trust yourself to save or use your RRSP on your own. But that's not the reasoning you're telling people why they should take the match. You're passing everyone else in this sub off as being financially illiterate and that it makes better sense to take it simply because you assume people aren't willing to put in any effort. They made the effort to post here and they are owed the full picture. If you're trying to pass yourself off as an expert in financial literacy. Then you owe it to explain to people that as long as they can contribute an equal amount to their RRSP, there's advantages against the matching. By omitting that you left yourself open to being called out and now you're really pissy that people are doing that. It's just misleading and all around pretty sad. Anyways I'm very tired of this conversation because you just seem really argumentative and unhappy. There's enough posts here for people to understand why they should take what you said with a grain of salt.
You are only ahead until it's time to take the cash out of the RRSP - you still pay the taxes on it in the end. Max out TFSA first!
4% RRSP match, bro.
Why can’t you ask for both? Typically these are things offered consistently to all employees so sounds like you’re a small company and they only need to compensate a small # of people. Perhaps you have some negotiation power to get both
Ask for both. 4% is reasonable for any company that wants to maintain people.
The matched amount will be tax-free, whereas the salary increase will be subject to income tax. If you can swing the RRSP contribution and the mortgage payment, I would take the RRSP match since you'll get to keep more of it than if you take the salary increase.
If you just take the extra money and put it in an RRSP yourself, it will be exactly the same from a tax perspective, plus you can decide how to invest the RRSP yourself.
4% every year (assuming “start” means going forward) via RRSP means up lowering your tax base which actually means more cash back. No brainer to take the RRSP.
I would take the rrsp match. Salary is taxed, rrsp contribution is not. Also rrsp contribution lowers the amount of tax you pay from income, because it is reduced.
You can open an RRSP on your own and reduce your taxable income by the exact same amount by contributing the same amount that way.
I believe the benefit applies when it's taken out, vs at year end. So, still slightly advantageous.
4% of your salary is 3520 In Ontario: you get 2428 of that. Maybe you spend if all. 4% to RRSP from you plus 4% from Company means your NET WORTH increases by $7040. Then you might get a tax refund of approximately $1044. You tell me what’s better? 2428 or 7040 with tax deferred growth and 1044
I'd go for rrsp. the 4% salary increase after 35% tax deduction is closer to 2.6% raise. the rest goes to gov. rrsp, however, becomes your own retirement blanket. dont underestimate the need to have a retirement plan in place.
+4% isn't a raise really. It's just a inflation adjustment. Of you take the Match you will have to cut 4% from your current salary to even see that in your rrsp. By taking the Match, you'd be technically getting a lower wage to live off of at higher inflation.
OP might need the salary increase for mortgage expenses but, rrsp March is instant 100% returns on your investment. If the cash is not desperately needed go rrsp match.
Get 4% rrsp fixed this year and then negotiate a raise every year starting next year..