The Investor’s Guide to Registered and Non-Registered Accounts

An investment account is necessary to purchase and sell securities. This account holds an investor’s cash and investments, including stocks, mutual funds, exchange-traded funds, and more.

To get started, investors can open either a registered or a non-registered account through a financial institution or brokerage. Each type of account has its own benefits, making it important that investors fully understand the differences.

Registered accounts receive favorable tax treatment from the Canada Revenue Agency (CRA). Registered accounts are intended to help investors meet particular savings goals, such as education and retirement.

Due to the advantageous tax treatment, money in registered accounts can potentially compound faster than it would in a non-registered account, which does not receive special tax treatment.

The special tax treatment received by registered accounts may include tax deferred or exempt growth, deductible contributions, opportunity for government grants or incentives, or exemption from taxation entirely.

Tax-deferred status means that income earned by the investments in the account are not taxed until funds are withdrawn from the account. This is the case with registered retirement savings accounts (RRSPs) and registered retirement income funds (RRIFs).

Contributions made to certain registered accounts may be deductible on an investor’s income tax return. This includes registered retirement savings accounts (RRSPs) and first home savings accounts (FHSAs).

Registered education savings plans (RESPs) enable investors to take advantage of government grants. The Canadian government offers grants to help fund children’s education, which can grow tax-free within a RESP until withdrawal.

Finally, both contributions and income earned in a tax-free savings account (TFSA) are entirely tax-free, even when an account holder makes withdrawals. It is important to note that TFSA contributions are not tax deductible.

Registered accounts may be compelling for the special tax treatment; however, they do have limitations. For one, registered accounts have contribution limits. Additionally, taxes upon withdrawal may apply. Furthermore, registered accounts can only hold only qualified investments. This may exclude alternative asset classes, such as cryptocurrency or commodities; however, ETFs that provide exposure to these alternative assets may be an option.

Non-registered accounts offer investors greater flexibility and fewer restrictions. Investors in non-registered accounts can invest an unlimited amount of money in a wide range of assets.

Unlike registered accounts, non-registered accounts generally do not have any limitations on how much an investor can contribute or withdraw from the account.

Additionally, non-registered accounts may be able to hold products that are not allowed in registered accounts. This may include alternative assets such as cryptocurrency and commodities.

Non-registered accounts are not given special tax treatment as registered accounts, as they are not registered with the Canadian federal government. Therefore, investors are required to pay taxes annually on income generated by investments held in a non-registered account.

Investment gains include any interest, dividends, distributions, and capital gains from selling investments. Investment gains are taxable in the year they occur.

Investors can use both registered and non-registered accounts to help them meet their financial goals. To summarize, registered accounts can help investors meet particular savings goals, such as education and retirement, and non-registered accounts provide a way for investors to invest with maximum flexibility and fewer restrictions.

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