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RRSP or a regular taxable account?

An RRSP gives you a refund up front and shelters your growth from tax until you take it out. See how much that shelter is worth compared with investing the same money in a regular taxable account.

This is a rough estimate. Future tax rates can change and are hard to predict, and how a taxable account is taxed depends on what you hold. If there's real money on the line, it's worth taking the time to think it through properly.
$
%
%
%
yrs
The RRSP comes out ahead by $0 more, after tax
RRSP strategy, after tax $0 Refund reinvested into the RRSP
Taxable account, after tax $0 Growth reduced ~0.5%/yr for tax

How this works. You invest the same amount of cash in each. The RRSP contribution is deductible, and you reinvest the refund back into the RRSP, so your cash funds a larger contribution: at a 30% tax rate, $10,000 of cash funds about $14,300 of RRSP contributions. The RRSP is taxed when you withdraw it. The taxable account holds money you've already paid tax on, and we reduce its return by about 0.5% a year to reflect the tax you pay on distributions along the way.

That 0.5% reflects a tax-efficient, broad-market index ETF, where most of the tax cost comes from its roughly 2% dividend yield and foreign withholding tax. If you hold bonds, GICs, or high-interest savings, which are taxed at your full rate every year, or you trade often, the drag is higher and the taxable account does worse than shown. This is general education, not personal financial or tax advice.

Wondering which accounts to use first? There's more on the blog.

Read the blog