A non-registered savings plan is a type of investment account that allows a person to save as much money as they want, without the limitations or tax benefits of registered savings plans.
Registered savings plans are registered with the government. Some types of registered plans offer income-tax deductible contributions, such as an RRSP, and there are limits on how much a person can contribute.
Saving for the future provides stability and peace of mind. There are many ways to approach education or retirement planning, and each has its own set of pros and cons. Before choosing your strategy, it’s important to understand the difference between registered savings plans and non-registered savings plans. Let’s get started.
Key Takeaways
- Non-registered savings plans offer flexibility on contributions and withdrawals.
- Generally, any investment income you earn in a non-registered savings plan is taxed.
- Registered savings plans, such as RRSPs or FHSAs, have tax advantages and stricter guidelines on contributions and withdrawals.
- Cash and margin accounts are 2 types of non-registered savings accounts.
What is a non-registered savings plan?
A non-registered savings plan offers a flexible way to invest without caps on contributions. It’s a great option for those who've maxed out their registered plan contributions or want more investment freedom.
As the name implies, non-registered savings plans aren’t registered with the government, meaning they don't follow the strict rules of registered plans. Investors can put in as much money as they like, whenever they want.
Unlike registered plans, any money earned by the account investments (including interest, dividends, or capital gains) is taxable.
Individuals or spouses can open 2 main types of non-registered accounts – cash and margin – offering a broad range of investment strategies including mutual funds, stocks, bonds, and more.
Difference between non registered savings plan and registered savings plan
Registered and non-registered savings plans both have their pros and cons, and it’s a good idea to leverage both as part of your overall retirement or education planning strategy.
Registered savings plans like RRSPs, RESPs, and TFSAs offer tax benefits and are ideal for long-term goals, but they do come with specific rules in terms of contributions and withdrawals.
Non-registered plans, on the other hand, provide flexibility in investment options and no contribution limits, but they don’t come with the tax advantages of registered plans.
| Type of savings plan | Benefits | Limitations |
|---|---|---|
| Non-registered | * No contribution limits * Flexibility in investment choices | * Earnings are subject to taxation * Contributions are not tax-deductible |
| Registered | * Some types of registered plans offer tax-deductible contributions, as long as the investor stays within the defined limitations * RRSP earnings aren’t taxable while they remain in the account * TFSA earnings aren’t taxable, even when withdrawn | * There are caps on how much one can contribute: * RRSP: Can contribute 18% of the previous year’s income * RESP: Limit of $50,000 total contributions per beneficiary * TFSA: The contribution limit is subject to increase. It was $6,500 in 2023 and $7,000 in 2024 * RRSP withdrawals are taxable at the investor’s current tax rate |
Non registered savings plan withdrawals
Withdrawals from non-registered savings plans are flexible, allowing access to funds at any time without specific penalties.
However, investment earnings from non-registered accounts (including interest or capital gains) are taxable. The tax rate on these earnings is determined by your overall income bracket, meaning the income earned from your investments will be added to your total income, potentially affecting your tax rate.
It’s important to plan investments strategically to manage potential tax implications.
Do you have a non-registered savings plan?
Non-registered savings plans in Canada offer a lot of flexibility but also come with their own set of limitations, especially when it comes to taxes.
Have you considered how a non-registered account could fit into your financial strategy?
How do you manage the tax implications of your investments?
We'd love to hear your thoughts and strategies. Feel free to share your experiences or ask questions in the comments below.
FAQ
What are the tax implications of a non-registered savings plan?
In a non-registered savings plan, earnings such as interest, dividends, and capital gains are taxable. This can make a big difference in an investor’s tax rate when tax time rolls around, making it crucial to plan these investments strategically.
What is the difference between a non registered account and a TFSA?
A non-registered account offers unlimited contributions and investment flexibility but its earnings are taxable. A tax-free savings account (TFSA) provides tax-free earnings and withdrawals but has annual contribution limits.
What is an example of a non-registered savings plan?
Cash accounts or margin accounts are examples of non-registered savings plans. Both allow you to purchase products like mutual funds, stocks, and bonds. They offer flexibility but don’t have the tax benefits of registered plans like RRSPs or TFSAs.
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