Prioritize Savings Vehicles

Generally speaking, there are many good reasons to use registered savings vehicles over non-registered ones. You have more to gain, as they all offer tax advantages, plus RESPs are eligible for “free” money. Use the table below to contrast and compare the advantages and drawbacks of each savings vehicle. Your savings goals, investment objectives and tax rate will all influence your choice of accounts.

Contrast and Compare

Use the table below to discover how RRSPs, RESPs, TFSAs and taxable non-registered investment accounts compare. The highlighted areas illustrate where the potential of an important tax advantage exists. Note that non-registered accounts have no special tax advantages when compared to registered accounts.

 

RRSPs

RESPs

TFSAs

Non-Registered

Contributions

Before-tax dollars (or tax refund based on your tax rate)

After-tax dollars

After-tax dollars

After-tax dollars

Government grant

No

Yes, CESG to eligible child

No

No

Tax on investment earnings (e.g., interest, dividends or capital gains)

No

No

No, unless taxed by a foreign government

Yes, in year received or accrued

Capital gains at 50% rate in year deemed disposed

Withdrawals taxed

Yes, added to income in year withdrawn

Investment earnings and CESG, in hands of eligible child

Principal, not taxed

No

No

Withdrawals may be re-contributed in a future year

No

No

Yes

Not applicable

Income splitting

Yes, your contributions may go into a spousal RRSP

Yes, CESG and income withdrawn are taxed in child’s name

Yes, you may contribute to another individual’s TFSA

Limited, investment income and capital gains are attributed back to the contributor

Who benefits the most?

Those who are in a much higher tax bracket when contributing money than when withdrawing it

The child named as the beneficiary

Those who realize a high rate of return on their investments

Those who generate dividends or capital gains, which are taxed more favourably than interest


Although not included in this comparison, do not forget the tax deferral and tax-sheltering benefits provided by employer-sponsored registered pension plans and deferred profit sharing plans. Consider your employer’s contributions as an additional form of compensation. The more contributed on your behalf, the less you need to save to achieve your retirement goals.

If your employer permits or requires you to contribute to your company’s pension plan, consider those payments to be equivalent to RRSP contributions. If your company offers a matching program as an incentive (such as, matching your contributions up to a certain dollar value or percentage of your pay), consider your company’s contributions as “free money”.

Taxable vs. Tax Advantaged Investments Calculator

How taxes are applied to an investment can make an incredible difference. This calculator is designed to help compare a normal taxable investment to two common tax advantaged situations: an investment where taxes are deferred until withdrawals are made, and an investment where taxes are paid on money that goes into the account, but all withdrawals are tax free.


Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.