A regular, registered saving account comes with great benefits, but it has its limits.
If you’ve maxed out on your savings account or have recently started investing, you may need to consider getting a non-registered account.
But what is a non-registered account and is it the right option for you?
Stick around to find out.
What Is a Non Registered Account?
Non-registered accounts, sometimes called “open” or “taxable” accounts, are saving accounts that are not registered with CRA (Canada Revenue Agency).
How Does a Non-Registered Account Work?
One of the main reasons why most people get a non-registered account in Canada is because they offer great flexibility.
These accounts have no contribution or withdrawal limit, which means you can save as much as you want and take out as much as you need, whenever you want to.
Another important benefit is that non-registered accounts don’t have an age limit. You have to be at least 18 years old (sometimes 19 years old) to open one, but you can still use it when you turn 71, which is not the case with certain registered accounts.
That said, a non-registered account comes with tax implications.
Contributions made to non-registered accounts are not tax deductible and any income you earn is subject to taxes.
But not all income is taxed the same.
Dividends are taxed on a gross amount, capital gains are taxed at 50% when realized, and interest income is fully taxable at your marginal tax rate.
The good news is that since all profit is taxable, withdrawal from a non registered account is not subjected to any taxes.
If you’re looking to start investing, but don’t know where to start, here are some of the top investment apps in Canada.
Types of Non Registered Accounts
Examples of non registered accounts are cash accounts and margin accounts.
You can open any of these individually or jointly with a spouse and use both (or each) to hold a portfolio or a wide array of investments, including ETFs (exchange-traded funds), stocks, mutual funds, GICs, bonds, and more.
The main difference between these two types of accounts is how you pay for the securities you want to buy.
In a cash account, you use your own cash to pay for securities. The investment assets are then taxed in a fiscal year.
With a margin account, you can borrow money against the investments in your account to buy securities– a process that’s also called purchasing on the margin.
Buying on the margin is risky, which is why these accounts are typically reserved for investors who have a good understanding of the market and how it works.
Prefer a safer option? Here are some safe Investments that have high returns.
What Is the Difference Between a Registered and Non-Registered Account?
The most obvious difference between a registered and a non-registered account is that the former is linked to the Canadian federal government. As such, these two accounts share very few similarities.
The most important differences between a registered and a non-registered account are:
One of the biggest advantages of opting for a registered account is that it lets you grow your savings tax-free. All contributions to a registered account are tax deductible, which makes it an excellent choice if you prefer the safer route.
In a non-registered account, all investment income is taxed, but there are fewer rules to follow.
Non-registered accounts offer fewer safe financial incentives but more opportunities. Unlike registered accounts, you won’t incur any penalties or extra taxes for depositing over the limit.
Non-registered accounts also don’t tax or limit withdrawals. With a registered account, you have to respect the annual contribution limit, even if you have more than one TFSA account.
In Canada, most registered savings accounts have a minimum or maximum age limit. For example, you have to be at least 18 years old to open a TFSA account and be under 71 to contribute to an RRSP.
That’s not the case with non-registered accounts. You still have to be of legal age to open one but there’s no upper age limit on them.
Should You Invest in a Non-Registered Account?
Non-registered accounts may not be ideal for everyone, but they’re a good option for both short- and long-term investing and can be a great addition to your overall financial plan.
You should seriously consider opening a non-registered account if you’ve maxed out your TFSA or RRSP or if you plan to use it after you turn 71 as some accounts are not available after this time.
This type of account is also a great choice if you want to invest in different assets and withdraw as many times as you want or need.
If you’re not sure what the best course of action is for your circumstances, you should talk to a financial advisor.
You cannot name a beneficiary or a successor holder on a non-registered account.
A registered account is a tax-sheltered account regulated by the federal government. They allow you to earn interest on the funds tax-free but they come with certain limitations.
Non-registered accounts are best suited for investors. They can also be an excellent alternative for people who have reached the annual contribution limit on their registered accounts.