# Employer RRSP match vs. contribution limits for recent grad with no RRSP room?

I'm just starting my first job (\$55k), which includes an employer RRSP match up to 5% of my income. I only have \$500 of RRSP deduction limit for this year as I have never worked before. Can I contribute the 5% to get the full match without incurring tax penalties?

## Employer matching is a 100% return. Always maximize if you can.

Assumption

If 5% is calculated on your salary of \$55k, maximum is \$2750. The company will add another \$2750 = Total \$5500.

If 5% is calculated on wages earned, you'll earn about \$30k this year, so max is \$1500 + \$1500 (\$3000)

Assuming earnings of about \$30,000 for the rest of this year, you contribute \$1500. Your company will chip in another \$1500. I'm not sure if your company bases 5% off your assumed yearly salary or actual wages. Adjust as necessary.

Anyway, assuming you now have \$3000 in your RRSP this will put you over by \$2500

TIP: contribute as late as you can to still get the matching portion.

I'm not 100% sure when 2016 RRSP contribution room gets added, but I'm pretty sure it's March 1st, 2017 ( worst case is Jan 1st 2018 ). Let's say you make the contribution in December, 2016.

# Given that you are allowed to go \$2000 over your limit... in reality

• \$500 in contribution room now
• \$2000 allowed overage
• \$500 is the actual amount you pay %1 / month on.

Best case is ~\$15 in fees ( Dec,Jan,Feb ). Worst case, \$65 ( 13 months of 1% on \$500 )

Paying \$10 – \$65 fees to receive \$1500 in free money is a 2,300–150,000% ROI!

(Now that's what I call a good return!)

NOTE: If 5% is calculated on your \$55k salary, you will be \$5000 over, \$3000 of which would be subject to 1% / month, resulting in a fee of \$90–\$360 ( ~700–3000% ROI !!! )

In short, you'll be over-contributed between 3 – 13 months during 2017. The 3%–12% you'll pay in overage fees is easily trumped by the 100% increase your company gives you.

# TAKE THE MONEY!

RRSP limits are similar to pension limits except they work on a 1 year lag. In this case it means you can't contribute much in your first year. If you truly only have \$2777 in employment earnings in your life (\$500/.18) then you can only contribute \$2500, taking into account the allowed \$2000 over contribution.

I would point out that if you contribute \$100 over this amount, the company will give you another \$100 and the government will charge you 1% / month on the excess. So if you're now \$200 over your limit, you lose \$12 in 6 months(until next year when you have a higher limit), but you get \$100 'free' from the company. Jus sayin...

You won't be able to use the over contributions until you actually have enough employment earnings in the previous year, so you'll have to wait a bit to use the deduction. The amount is 18% of earnings so your 5% + company 5% won't use all available room.