Non-Registered Investments
While an RRSP is good for reaching longer-term goals, holding investments in a non-registered account can play a key role in retirement planning. One great advantage of non-registered assets is the access to capital for special needs such as large purchases or expenses. During retirement, this may include home repairs, automobile purchases, or repairs, vacation travel and special trips.
Unlike RRSPs, the capital can be withdrawn without paying tax. Tax is paid annually on earnings of non-registered investments. Equity gains are taxed at a lower tax rate than interest income and are only taxed when capital gains are actually triggered by a sale.
Banks vs. Insurance Companies
By investing inside a non-registered account, you get a great deal of flexibility, including easy access to your money. Compare the difference:
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Insurance Company Segregated Funds & GICs |
Stocks, Bonds, Mutual Funds (Banks) & GICs |
| Probate Fees |
No probate fees |
Subject to Probate Fees up to 1.5% |
| Legal Fees |
No legal fees |
Subject to Legal Fees, average 3-6%. |
Accounting or
Trust Fees |
No accounting or trust fees |
Subject to Accounting/Trust Fees average 2-5%. |
| Fund Distribution |
Funds distributed upon proof of death. |
??? |
| Privacy |
Privacy protected in probate. |
Matter of public record.** |
| Credit Protection |
Potential for credit protection. |
No potential for credit protection. |
| Death Benefit |
Death benefit guarantees |
No death benefit guarantees |
| Estate Costs |
No potential for Estate Costs* |
Subject to Potential Estate Costs of Up to 12.5% |
*Request an Information Folder for full details.
**Where probate sought. |
Guaranteed Investment Certificates (GICs)
With a GIC, your principal investment is safe and the rate of return is guaranteed for the term of the investment, so you don't need to worry about how market fluctuations might affect your investment.
When you buy a GIC, you invest a sum of money for a specific term, or period of time. At the end of that term, you are guaranteed to receive your full principal - your initial investment - plus interest income on your money.
GICs are issued in your name and can't be sold except to the institution that issued them. You agree to keep the money in the GIC for a set period in return for a set rate of interest. Compound GICs pay you interest on your interest. Instead of paying the interest to you outside the GIC, the interest is added to your original deposit. This means you'll get more money in subsequent interest periods.
GICs are relatively safe investments. An important risk is that you'll need to access your money before the GIC matures. There's also a risk if you lock in your money in a five-year GIC and interest rates go up two years later.
GICs mostly pay higher rates of interest than bank savings accounts, but less than many other investments. Rates are higher for longer term GICs and for larger deposits.
Segregated Funds
Segregated Funds combine the growth potential of mutual funds with the security of insurance. When you invest in a segregated fund, you are actually buying an insurance contract. The money from each contract is then invested in an underlying mutual fund. While you don’t own units of the mutual fund, the returns of your segregated fund will closely track those of the underlying mutual fund.
Segregated funds come with guarantees designed to protect your money from market volatility. Depending on your chosen level of protection, you are guaranteed that you will get back up to 75-100% of your investment, regardless of how markets perform. Following your 10-year term to maturity or upon your death, you or your beneficiaries will receive either the guaranteed amount or the market value of your investment, whichever is greater.
Like mutual funds, you can buy and sell segregated funds at any time. However, if you sell prior to the maturity date, you will receive the market value, which may be less than your original investment.
In addition to the death benefit that helps you preserve your investments for your beneficiaries, segregated funds can help you avoid costly delays that can affect the value of your investments as funds will flow directly to your beneficiaries, bypassing probate.
Non Resident RRSP treatment
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