Put simply, non-registered accounts are not registered with the Canadian government, while registered savings plans are. Both types of savings accounts are offered by Canadian banks, mutual fund companies, and financial advisors. Both offer valid reasons to be part of your overall financial savings strategy.
There are different tax implications for each type of account:
- Investment income generated in a non-registered account is subject to tax in the year that income is earned. However, capital gains accumulated in a non-registered account are subject to tax in the year the assets are sold.
- Investment income or capital gains generated in registered accounts, such as an RRSP or a TFSA, are not subject to tax until paid out.
- Contributions to a non-registered account are not tax deductible.
- Contributions to a TFSA are not tax deductible.
- Contributions to an RRSP are deductible.
- Withdrawals from a non-registered investment account are not taxed.
- Withdrawals from a TFSA are not taxed.
- Withdrawals from an RRSP are taxed.
When are non-registered investments accounts a good idea?
- If you have a lot of money to invest, there are no limits to your contributions to a non-registered account. This makes them a good option if you have maxed out your allowed RRSP or TFSA contributions.
- If you need to withdraw a large sum for a specific reason, no worries. Non-registered accounts have no withdrawal limits.
- Unlike a registered RRSP, there is no upper or lower age limit for contributing to a non-registered investment account, so they could be a good idea if you are below age 18 or older than 71 when you can no longer contribute to your RRSP.
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