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Registered vs. Non-registered Investments

If you are reading this article that means either you already an investor or contemplating ways to invest. That is a virtue in itself considering the consumerist culture prevalent in North America. There are mainly two types of investment available for an investor. The banks, financial institutions and offer registered or non-registered investment plans to the consumers. You may consider approaching a wealth management company to help you select the suitable plans for you. Let us discuss some advantages of both the registered and non-registered investments.

Registered Investments

The investments which you make in government – registered accounts and plans are known as ‘registered investments.’ Some examples of registered accounts are- registered retired saving plans (RRSPs), registered retirement income funds (RRIFs), registered education savings plans (RESPs), and tax-free savings accounts (TFSAs). Let’s look into some of the features of registered investments–

Tax-free investments: Unlike non-registered investments which incur taxes, your investment is completely free of taxes in registered investments.

Tax-Benefits: You will save on your taxes as your contributions to registered investments are not counted as taxable income. Non-registered investments have no such special status. 100% of the non-registered investments are subjected to tax.

Transfer to Non-registered Investments: You may divert your investments to non-registered investments from registered investments. The flow of funds in the opposite direction, i.e., from non-registered to registered is not permitted.

Tax-Savings on Loans: In case you borrow from your registered investment account, you will get to save taxes on the loan amount. Let’s make it clear with two scenarios-

1)      You currently do not contribute to a registered investment account. If we assume that your annual income is, $1,00,000 and the loan amount is $10,000, then you need to pay taxes on only $90,000. The calculation would be-

 Taxable income = $100,000 (annual income)-$10,000 (loan amount).

2)      In the second situation, the income and taxes remain the same, but you also contribute $10,000/ annum to your registered investment account. You will be paying taxes on only $80,000. So, the new taxable income would be the subtraction of both the loan amount and the contribution to the registered investment account from the original annual income. The calculation would be-

Taxable income = $100,000 (annual income)-$10,000 (loan amount)- $10,000 (annual contributions).

The loans you take on your non-registered investments would not make any such tax savings.

Non-Registered Investments

The investments which you make with private banks and financial investments are called ‘non-registered’ investments. The non-registered investment also has some significant advantages. Most of the top wealth management companies in Canada would certainly recommend you to invest in non-registered investments.

No Taxes at Withdrawal: Non-registered investments, unlike their registered counterparts, are not charged taxes at the time of withdrawal. The taxes can be as high as up to 49%. Also, taxes are charged at only 50% of your marginal tax rate on any capital gains made on the non-registered investments.

Unlimited Investment Facility: RRSPs allows investments up to 18% of your annual income. Similarly, there are restrictions on other registered investments like- you may invest at the maximum of $50,000 in RESP similarly the figure for TFSA is $5,500. These restrictions might not be suitable for you if you are trying to save more money.

The non-registered investment accounts allow you to make investments without bothering about limits. You can save as much you require with non-registered investment accounts.

No Age Limit: The maximum age limit for consumers to invest in registered investment accounts is 71. That means the investment withdrawal is compulsory when you reach 71 years of age.  There is, however, no maximum age limit to invest in non-registered investment accounts. It makes perfect sense for you to move your complete investment portfolio to non-registered investment accounts after you have turned 71.

Margin Facility: You may borrow additional money from the banks or financial institutions to leverage your trades. Non-registered investments would provide you with this margin facility. Registered investments do lack the margin facility.  

The Verdict

It is tough to declare which is the better investment plan. The optimum investment plan for you may depend on a lot of factors. A consultation with a professional wealth management company prior to the investment would be a wise decision.

Income: If you are making a lot of money then you would ideally like to save more than 18% of your annual income. The non-registered investments would serve your better. In case you don’t have that kind of cash flow, you might like to play it secure with the registered investments.

Risk Appetite: If you are a risk taker then non-registered investments would undoubtedly suit you better. On the contrary, if you have low – risk tolerance then invest in registered investments.

Age: You might have played it safe and stayed invested in registered investments for all of your life. You still have to think about investing in non-registered investments as you approach the critical age of 71.

Investment Knowledge: The investment knowledge though is important for both types of investments. It is, however, critical for non-registered investments. You don’t have to be a maverick like Warren Buffet, but some degree of investment knowledge will always help your cause. You sound investment knowledge may help you select a good wealth management company. Your knowledge will also come in handy to understand the jargons and comprehend the complex documentation. You will be able to understand the facts and figures.

Will to Monitor Investments:  Knowledge is not sufficient. You must have the willingness to monitor your investments. Can you accomplish the tedious tasks of going through the analysis and various other reports from the wealth management company? If your answer is in affirmative then you should favor non-registered investments.

Do you still need more information? Get in touch with our wealth management experts- Justin and Amy. We are located in Edmonton.

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