Is it better to invest in RRSPs or in a non-registered account?
For the average Canadian taxpayer, it is usually better to invest in
RRSPs, because:
- you will probably be in the same or a lower tax bracket when you retire
- your investment income grows tax-free inside the RRSP
- you can invest in stocks, bonds, foreign and other investments without worrying about the tax implications
- you are less likely to withdraw the money than if you are saving it in an unregistered account, so you will build up a sizeable nest egg by retirement
It may be better to invest non-registered account (outside of RRSPs) if:
- you will be in a higher tax bracket after retirement, and
- you invest all your money in capital gains producing investments, and
- you are comfortable not owning any bonds or other interest-producing investments, and
- you do not sell any investments until retirement, because the sale would generate taxable capital gains.