Back to Blog

Understanding RRSP Eligible Investments

RRSP eligible investments are a great way to save for retirement, but registered and non-registered RRSPs have different benefits depending on where you put your money.

4 Key Differences Between Registered And Non-Registered RRSPs

As much as you might want to, you can’t simply put all your investments into an RRSP. That’s because they allow taxes to be both deferred and sheltered, which the government isn’t too fond of. And because not all investments are RRSP eligible investments, some financial planners may ask you to look at both registered and non-registered RRSPs when choosing where to put your retirement savings.

But what are the main differences between these options, and what impact do they have on RRSP-eligible investments?

1. Invest Tax Returns Into A Registered RRSP

It’s no secret that RRSPs are a great way to defer taxes, but you might not know that a completely RRSP-eligible investment allows you to invest an RRSP tax return (from making the RRSP investment in the first place) right back into your RRSP. This maximizes tax savings, and is something you can’t do with a non-registered RRSP.

2. Pay Fewer Taxes With A Non-Registered RRSP

Since your RRSP is considered taxable income, money withdrawn from it will be fully taxed at rates up to 49%. Non-registered investments, which are considered capital gains, will only be taxed at half your individual tax rate is. To generate more capital gains, you can invest in many separate non-registered accounts.

3. Registered RRSPs Reduce Taxable Income

One of the biggest benefits of an RRSP is what’s called a tax credit. Basically, a tax credit means that depending on the amount of money you contribute to your RRSP, your overall taxable income is reduced. Obviously, this is a simplified explanation and taxes are only reduced up to a point, but if you speak to a financial advisor about all your RRSP eligible investments, this is sure to come up.

4. Non-Registered RRSPs Have No Contribution Limits

It can be extremely beneficial to put money into a non-registered account if you’re able to contribute more than an RRSP would allow per year. And since non-registered RRSPs also only tax the capital gains in the account at half of your tax rate, they can be great for long-term savings and also benefit anyone who may need to take money out of their account (something heavily penalized in an RRSP).

In most cases, a combination of both types of accounts is the best way to get the most out of the money you’re investing. A financial planner will be able to go over all the fine details of RRSP eligible investments and the different ways you can go about spreading your money around to get the best return from your savings.