Both registered and non-registered accounts can play a role in a well-balanced investment plan, but they serve different purposes.
Registered accounts (TFSA and RRSP)
Registered accounts are set up under government programs and offer tax advantages:
TFSAs and RRSPs allow investments to grow with tax benefits
Both have contribution limits set by the government
Exceeding those limits can result in penalties
A TFSA is the most flexible registered account:
Withdrawals are tax-free
There are no fees or tax consequences when you take money out
Contribution room is restored when you withdraw
An RRSP is best used in more specific situations, such as:
During higher-earning years when saving for retirement and you don’t expect to need the money before then
When saving under the Home Buyers’ Plan (HBP) for a first home
Withdrawals from an RRSP are taxed as income, which makes it less flexible for short- or medium-term goals.
Non-registered accounts
Non-registered accounts do not offer tax shelters, meaning investment income and gains may be taxable. However, they provide greater flexibility:
No contribution limits
Funds can be withdrawn at any time