note: This was a message I had written for Yazan when he had some questions regarding whether he should invest in his employers RRSP plan, his own individual RRSP or carry forward his deductions.
@Yazan Armoush you were asking about RRSP investments and I had to refresh my brain on how that works in Canada but this is what I remember now (obviously do your own research to confirm though):
Note: This is NOT financial advice, just informational - had to add a disclaimer here :lmao
RRSP plans can be thought of as either 1) Individual, 2) Grouped
Individual
Pros: 1. You are not limited to the investment options provided by your employer-sponsored plan. 2. In theory an employer-sponsored plan should provide more “competitive” expense ratios, but that’s not always the case, and usually any mutual fund your employer invests in will have a larger expense ratio than an index fund. 3. When you leave your employer it’s possible that you can’t keep (or would want to keep) your account with the financial institution that you are currently in. When you try to transer out to another institution, you might have to pay a host of fees such as adminstrative fees between 150, and other fees. 4. I’m not sure you can carry forward your deductions in group since they are taken pre-tax? I guess it might be possible, if your HR software supports it coming out of after tax, or if you can claim the invested income as additional income on the end of the year, but then you’d have to pay all that tax at once, and generally this all adds complexity.
Group
Pros: 1. Employer matching - employers usually (I’ve never heard otherwise) only match if you contribute with their offered plan provider. 2. Your deductions are taken pre-tax on your paycheque, so you can invest your pre-tax savings immediately (more time in the market), instead of waiting for your tax refund and then investing your savings.
Despite all those drawbacks, it’s very hard for expense ratios to make up for the free money provided to you by your employer matching. So I’ve seen folks usually either just put all their contributions to the employer-sponsored RRSP, and this gets the employer match, immediate pre-tax deduction benefits, and lowers their complexity. Alternatively, you can invest just enough to get your employer match, and then put the rest in your individual RRSP that you open with any other financial institution i.e. wealthsimple.
There is also an interesting idea of just paying into your employer-sponsored RRSP, and then trasferring that out to your individual RRSP - this does incur all the fees I mentioned above, but some institutions have reimbursements for the adminstrative fees i.e. wealthsimple - https://help.wealthsimple.com/hc/en-ca/articles/360056580174 (note this doesn’t include DSC fees or other fees), or other promotional offers. So depending on the fees for the transfer, this would mean that you could just invest with your employers provided plan, and the pay the higher expense ratio for the year (or whatever time frame that makes sense to do the transfers at), then transfer it over to your individual account so you can get the lower expense ratios on an index fund or a robo-advisor like wealthsimple.
You had also mentioned you want to carry forwards your deductions, but interestingly it seems like the amount of scenarios where that’s more beneficial is very low. TLDR: When you carry forward your investment you can’t claim those savings immediately, so even though if in the future your tax bracket is higher and you’ll save more money on tax, you’re losing out on the rrsp deductions being in the market that entire time. Here’s an excellent article that goes through the math and some common scenarios: https://web.archive.org/web/20230316043251/https://www.retailinvestor.org/rrsp.html#delay