Registered vs non registered investments

[Daxin]

I'm really not to clear as to the benefits to investing into a non-registered account. Does anyone have any insight as to the pros and cons of investing into a non-registered for retirement savings.

Thanx

[Xtrema]

If you have room in your RRSP and it's for retirement (long term), you should ALWAYS put it into RRSP for tax benefits.

You invest outside RRSP for flexibility. You would only do it under 3 circumstances:

1) You have no more room in RRSP

2) You already have TOO MUCH money in RRSP

3) You are close to retirement age (and hopefully you have already achieved #2)

4) You actually want to spend what you make on the investment quickly and without hassle.

[Rav4Guy]

There are several benefits to investing both inside and outside a RRSP. It really depends on your situation,

If you have the RRSP contribution room and you want to lower your taxable income, then figure out the amount you'll need to contribute where you won't need to pay additional income tax. Remember, RRSP = long term growth.

If you don't have the RRSP contribution room and want a straight investment account, a cash account will work just fine for that.

BOTH accounts will allow the flexibility of trading stocks/bonds/mutual funds. A RRSP account will not be AS flexible as a regular cash account as there are several things that are not RSP eligible.


If you have any questions, please feel free to PM your contact. I am licensed and registered with the IDA as a Registered Representative.

[TrevorK]

Originally posted by Daxin
I'm really not to clear as to the benefits to investing into a non-registered account. Does anyone have any insight as to the pros and cons of investing into a non-registered for retirement savings.

Thanx

RRSP put the taxes off until you retire, and when you do finally get to withdraw the money it is taxed at full rate (interest income).

When you invest in non-registered investments, you could potentially return capital gains or dividend income.

For instance, if you have $50,000 of interest income (And no other income) you would pay ~$10706 in income tax.

If you have $50,000 of dividend income (and no other income) you would pay ~$322 in income tax.


There are many different investment strategies that you can use, and a financial planner should be able to advise you on what is best for you. If they blindly state to invest in RRSPs that is your queue to walk away.

[Rav4Guy]

^ RRSP does not put off the taxes till you retire. Simply not correct.

RRSPs allow an individual to grow their money inside a RRSP shelter without being taxed... interest income, dividends, or capital gains. You are taxed on the amount that you decide to withdraw from it, at any age. When you do retire and withdraw from your RRSP, it'll be taxed at your marginal tax rate.

Consult an actual advisor and see what fits your lifestyle.

[Xtrema]

Originally posted by TrevorK
For instance, if you have $50,000 of interest income (And no other income) you would pay ~$10706 in income tax.

If you have $50,000 of dividend income (and no other income) you would pay ~$322 in income tax.

True. But the idea of RRSP is that you're compounding on gain without any taxes. So your money grow a lot faster with less initial investment.

Also, withdrawal IS taxable. But you would only withdraw the minimum amount that you need to minimize taxes. By the time you retire, you should not have other incomes other than RRSP withdrawal and capital gain/dividend on investments outside of portfolio.

RRSP is good for middle/lower class people with jobs and virtually useless if you make boat loads of money (> $150K/year)

[Daxin]

Currently, I don't have that much invested into my RRSP (used up my first time home buyers program last year) and I was thinking where to pump in all my extra earnings. Sounds like the RRSP is the way to go.

But, when you do retire, how much is the minimal amount you are allowed to take out from your RRSP? Because wouldn't it be beneficial if you have both registered and non so you can pull out the min amount from your RRSP and take the rest out from a non reg investment?

[Rav4Guy]

Home Buyers program, you'll need to repay a percentage of that every year otherwise it'll be included as income.

At age 69, the minimum payout is 4.76% and increases every year.

here's a quote:
RSP accounts must be matured (closed) in the year in which the planholder turns 69. Rather than taking all of the funds into taxable income in one year, an alternative is to transfer the tax sheltered funds into a Retirement Income Fund (RIF).

You may not make new tax-deductible contributions to a RIF and you must withdraw a minimum amount each year commencing the year after you establish the RIF. Minimum withdrawals are based on the market value of the fund as of December 31 of the previous year and the planholder's age. There is no maximum limit for withdrawals from this plan. Income generated in the plan is tax sheltered, however, all withdrawals are taxable.

[msommers]

I've have registered and non-registered accounts setup with Investor's Group.

Registered is my RSP contributions, I have three different portfolios.

Non-registered is just like a regular savings account but with mine I have various equity funds.

Reason I have both is:

1) RSP's are tax deductible

2) As a full time student, I don't get technically taxed on my RSP's if I ever need to pull them out because of the "Life Long Learning Plan" but to be honest it's not really worth it, big reason why I don't put much in there. Sort of set aside and forget about money.

3) Non registered I can take as much as I want, whenever I want. But the point of a "savings account" is to save so the traffic from this one isn't high.

If you're just looking for a savings account and want to get more than the 0.13% interest you get at the bank, definitely look into equity funds. If you're looking to seriously start saving for retirement and/or looking for tax deductible entities, registered is the way to go. Sometimes companies will match your RSP contributions which is nice.

[Daxin]

Thanx guys. This is very helpful.

[TrevorK]

Originally posted by Xtrema


True. But the idea of RRSP is that you're compounding on gain without any taxes. So your money grow a lot faster with less initial investment.

By investing in tax efficient investments you can limit the amount of tax and maximize the growth of non-registered investments.

Also, withdrawal IS taxable. But you would only withdraw the minimum amount that you need to minimize taxes. By the time you retire, you should not have other incomes other than RRSP withdrawal and capital gain/dividend on investments outside of portfolio.

Unfortunately, once it converts into a RRIF you are going to be paying a lot of tax.

Once strategy I've seen used is people retire early, live off their RRSPs while waiting for their pension to kick in.

EDIT: I should clarify - private pension (not CPP).

[TrevorK]

Originally posted by Daxin
Because wouldn't it be beneficial if you have both registered and non so you can pull out the min amount from your RRSP and take the rest out from a non reg investment?

The non-registered investment can still be interest, dividend or capital gain income.

If your non-registered investments are bonds for instance, you'll pay just as much tax on the return of those bonds as you would on pulling money out of your RRSP. Which makes investing in the bonds outside your RRSP a poor decision when looking strictly at after-tax returns.

One strategy commonly used is holding the tax inefficient investments (Typically the safe stuff in your portfolio) inside the RRSP while holding the risky stuff outside.



Whether you should have both or one/the other is completely dependant on your financial situation. No two people are alike, and blanket statements don't apply. I would advise contacting an independant financial planner (Not affiliated with a bank or company that has an interest in selling your specific investments) for a consultation.

[boostinside]

First things first.

RRSP= 100% taxable at your tax bracket. And you lose control after the end of the year in which you turn 69. They must be converted to a RIF at the end of the year in which you turn 69. Which will have a minimum amount you have to withdraw.

Open investment's are taxed at 50% of the GROWTH only at your tax bracket....or if that's confusing you can think of the whole thing being taxed at half of your tax bracket.

But you need to sit down and talk with a professional about getting something set up for you personally. I do not advise doing this on your own. And yes go to somebody who does not sell their own products.

BTW, I am an Independent Financial Broker and can help you out. PM me for more info.

[Rav4Guy]

Originally posted by boostinside
First things first.

RRSP= 100% taxable at your tax bracket. And you lose control after the end of the year in which you turn 69. They must be converted to a RIF at the end of the year in which you turn 69. Which will have a minimum and a maximum amount you can withdraw.

BTW, I am an Independent Financial Broker and can help you out. PM me for more info.

Does your firm put a maximum on the RIF withdrawals? as there should be NO maximum amount placed on the account.

what firm are you with?

[boostinside]

Originally posted by Rav4Guy


Does your firm put a maximum on the RIF withdrawals? as there should be NO maximum amount placed on the account.

No, you are correct and post was edited.

what firm are you with?

Why? are you looking for a job?

[Rav4Guy]

Originally posted by boostinside


Why? are you looking for a job?

nope... I'm happy where I'm at. I'm just wondering which firm you work at.


EDIT:

Originally posted by boostinside


BTW, I am an Independent Financial Broker and can help you out. PM me for more info.

Ahhh.. you're with World Financial Group. Financial Broker.. hmm.