Comments on: RRSPs versus Non-Registered Accounts

By: Tax Guy

Tax Guy — Sun, 05 Feb 2012 19:42:50 +0000

Income on the investments are taxable and are reported as income is realized.

By: eric

eric — Sun, 05 Feb 2012 19:21:56 +0000

On our income tax forms,RRSP contributions go on Schedule 7 and are deducted from total imcome.
My question is,how do contributions to a non-registered investment account figure in when doing tax returns?If I contribute less to an RRSP and more to a non-registered investment account,will I get hit by paying more taxes now versus being deferred by RRSP contributions?
Thanks

By: Tax Guy

Tax Guy — Fri, 11 Feb 2011 21:41:09 +0000

Not to be too picky, buy there is no such thing as a non-registered RRSP. There are tax-deferred accounts such as RRSP’s, tax-free accounts (TFSA), and non-registered accounts (taxable accounts).

The withdrawals from an RRSP is included in your personal income and taxed at your marginal rate. Withdrawals from non-registered accounts may trigger capital gains or losses, of which only the net capital gains are taxable (and only at ½ the regular tax rate).

Prima facie, it would seem that the non-registered investments or TFSA is a better option. However, if you business is a corporation, you may be able to hold your businesses, shares in the RRSP. This would allow the business to access the cash in the RRSP (you sell existing RRP investments and buy shares of your new corporation…The new corporation then has cash).

By: George

George — Fri, 11 Feb 2011 05:54:41 +0000

If I have saving in a registered and non-registered RRSP accounts and I require cash for a new business opportunity, which account makes more sense to draw from?

Thank you in advance

By: Tax Guy

Tax Guy — Thu, 10 Feb 2011 21:47:43 +0000

Yes and no.

The RRSP and RRIF are tax deferred accounts. Investment income is not taxed in the account. only withdrawals are taxed.

Non-registered accounts are fully taxable.

By: Tax Guy

Tax Guy — Thu, 10 Feb 2011 21:46:25 +0000

All investment income and capital gains are not subject to income tax in Canada. Losses are also not claimable within an RRSP, RRIF or TFSA.

By: Anthony

Anthony — Thu, 10 Feb 2011 14:37:05 +0000

Can you invest the money in your RRSP account in equity/security markets? is non-registered accounts a tax deferred account? Thank you sir.

By: John

John — Thu, 10 Feb 2011 14:33:57 +0000

I would like to ask if you had a self-directed RRSP account, are capital gains within that account tax free?

By: Tax Guy

Tax Guy — Wed, 09 Feb 2011 13:20:59 +0000

Of course it makes more sense to retire without a mortgage. A retiree would then not require the extra income to pay the mortgage.

Someone earning $34k to $46k per year would be in the 24% and 31% marginal brackets (Ontario) respectively. The contribution to the RRSP should generate some immediate tax savings that could be used as a lump-sum mortgage payment.

The tables you are referring to are median for couples. The average total income for a Canadian family was $89,700 whereas the average for a married elderly couple was $60,400. This suggests that retired married couples can expect their retirement income to be somewhere around 70% of their pre-retirement income. If we use your same split (58/42), then the higher income earners income will go from $52,000 to $35,000 shifting them from the 31% tax bracket to the 20% bracket.

Everyone’s personal financial situation is different, but I still contend that for most (average) Canadians, an RRSP makes perfect sense. However, those on the low end of the income ranges may see no benefit and the TFSA might be a better option.

By: Traciatim

Traciatim — Tue, 08 Feb 2011 17:52:07 +0000

“For most Canadians however, it is better to contribute to an RRSP.”

Are you sure about that? The median family income of all couple families was $75,880 in 2008, so probably somewhere near 80K in 2010. Split that 58%/42% for the couple and you have individual incomes at 46K and 34K. At this income level wouldn’t it be better to have no mortgage and no income from investments so you get the full CPP/OAS/GIS? So wouldn’t most people be far better to use the TFSA and then mortgage once you max that. If you are in the top tax bracket then do the same but RRSP first, mortgage with refund and extra savings, and then TFSA after that?