MUTUAL FUND INVESTING: Why RRSPs win out

Every so often, you may hear the opinion that saving in a non-registered account is a better way to fund your retirement than investing in mutual funds in a Registered Retirement Savings Plan (RRSP).

The claim focuses on the tax that’s payable when you withdraw funds for retirement income. All RRSP or Registered Retirement Income Fund (RRIF) withdrawals are taxed as income at your marginal tax rate. With a non-registered account, any withdrawals that involve selling equity investments are taxed more favourably, only triggering tax on capital gains.

However, even though non-registered equity investments offer a tax advantage, you still come out ahead with an RRSP. It’s all because you can make greater contributions in an RRSP with your available investment dollars than you can in a non-registered account. Here’s an explanation.

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