"Therefore, having some of your retirement income provided from the assets in a Tax-Free Savings Account (TFSA) would be beneficial as you can withdraw those assets tax-free."

If you’re in a lower tax bracket, contributions to a TFSA might make more sense for you. As long as you have room in your RRSP, the value of your TFSA can be moved into an RRSP later—like when you’re in a higher tax bracket and could get a bigger bang for your buck. In the meantime, your assets in the TFSA will grow tax-free.

Early in your career, when your income and your marginal tax rate are likely going to be lower, think about investing in a TFSA instead of an RRSP. In your mid-career, when your income is higher, investing in both a TFSA and RRSP can be the best option, allowing for tax-free withdrawals at any time from your TFSA. As you reach the late stages of your career, your earnings will likely peak and be higher than your anticipated retirement income. Since your tax rate will be at its highest, investing in an RRSP can help you defer taxes. If your RRSP contribution room has been used up, any excess savings can be invested in a TFSA.

Once you're in retirement, you may want to put additional savings into TFSAs. Most of the money you’ll earn from your income sources, like pension plans and Registered Retirement Income Funds (RRIFs), will be taxable. Plus, benefits like Old Age Security are reduced if your income is too high—it can be best to get some of your income from TFSAs. Why? Income withdrawn from a TFSA is tax-free and won’t affect income-tested benefits like Old Age Security. Learn more about Old Age Security and if it will be enough to help you retire.

If you continue to have a high income in your early years of retirement and you’re 71 years old or under (or you have a spouse who’s 71 or under) then RRSP contributions may be better to reduce that income as long as you have RRSP room. Just keep in mind that once you hit 72 your RRSP savings will be rolled into RRIFs and minimum withdrawals are mandatory. If you don’t need these funds to cover your living expenses, you can invest them back into a TFSA.

Using non-registered investments for retirement savings

“Non-registered investment accounts are another vehicle that can be used to accumulate wealth for your retirement or other financial objectives,” said Lamarche. “A non-registered account can hold similar investments as a TFSA or RRSP and can often hold certain investments that would be prohibited in those accounts, like private small business shares for example.”

Unlike RRSPs, which provide tax-deferred growth, and TFSAs, which provide tax-free growth and tax-free withdrawals, earnings in a non-registered account are taxable as they grow. This income from non-registered investments is usually taxable in the year it’s earned and how you’re taxed depends on the type of income the investment produces.

Income types are determined by the specific investments in the non-registered account. They can include dividends, capital gains or interest income. “Some income types are more favourably taxed than others, so it’s important to ensure you have the right investment mix in your non-registered account,” said Lamarche.

Income you make on interest from your non-registered investments are fully taxable at your personal marginal tax rate, but only 50 per cent of any capital gains income is taxable. Dividends are taxed at a grossed-up amount and could give you a dividend tax credit if they come from Canadian sources, making them more tax-efficient than income produced by interest growth.

Unlike RRSPs and TFSAs, there are no limits to the amount that can be contributed to and accumulated in a non-registered account. If you’re maxing out your tax-efficient RRSP and TFSA, you can accumulate more wealth in a non-registered investment account.

If you’re using non-registered accounts to invest for retirement, you’ll need to weigh a few factors. These include your risk tolerance, investment knowledge and ability to monitor those investments.

You don’t have to navigate your investments alone. An ATB Financial Specialist can help you find the right balance between registered and non-registered savings accounts, help you grow your wealth and be as tax-efficient as possible.

Looking for more information on retirement? Check out our step-by-step retirement guide—it’s here to help lead you through every stage of your retirement journey.