Hi my name is adam welcome to the channel thanks for joining us today today we're going to talk about non-registered investment accounts and this comes straight from a client that we were doing a financial plan with um and he had a few questions or they had a few questions around you know non-registered accounts how to.
Structure them they had one in place already that had a big gain on it that was held single life you know should they take some of the other cash to have and do joint life so let's walk through that process i think a lot of you again fall into the situation it's a common situation of you know do we do joint accounts individual accounts what.
Are the benefits why aren't they um and a lot of us kind of look at the surface level stuff but you know we dig into the you know retirement planning the tax planning how does that you know how is that affected down the road so let's jump into that if you're not already subscribed to the channel hit the subscribe button below it takes one.
Second it costs you nothing we release videos every week two every week in september we'll jump to three and we just put videos out on financial retirement estate and tax planning for canadians whether you live in canada or abroad so let's jump into a bit of a situation you have a bucket of money could be from.
A sale of property it could be an inheritance it could be just money that you've saved up over time um what you do with that money so we're assuming that you're married or kamala partner so you could have a joint account essentially so for single people out there you know build up that non-registered account if that's the.
Best option for you again you've used your rsp tfsa in this situation or any situation here and you have this cash like what to do with that if you're single obviously you build a non-registered account build it up it's going to be taxable to you um but it's still a great way to do it so but let's jump into if you're married or come.
Along this you know this video is more around that around some tax planning around do you do the count you know in individual names or do you do a joint non-registered investment account so when we look at a joint non-registered investment account the biggest benefit is that when one spouse or common partner passes away that money goes to.
The other person without any tax bill being due okay so it just defaults to the other person okay so the ownership of the account if you're both on there one of you passed away the other person just continues with ownership of that okay if there's a big taxable gain in that account no tax bill is due okay it's not due.
Until second death okay so that's obviously a huge benefit if you put a hundred thousand in there and fast forward thirty years once or three hundred thousand you know there's a two hundred thousand dollar capital gain in there we want to make sure that you know that on first death no tax due second death tax would be due.
But the account could be liquidated at that point the other big benefit with doing the joint account and this really comes into tax planning in retirement but also leading up to retirement okay so this is where we see people either joint or single life okay so if you have a joint a non-registered account any income that.
You earn in there every year is split tax wise okay so what we see is in retirement it's nice to have that split tax but what we find is leading up to retirement a lot of people will set up you know the the investment account say it's from an inheritance or sell property whatever it is under the lower income earner and that makes a whole lot.
Of sense because any of the income that's earned in that non-registered account is taxed back to the lower income earner right it could be at a zero tax rate now you have to be careful of from attribution rules okay so attribution rules is you know the high income earners made money you know giving that essentially to the.
Low income earner to invest and make more money on be careful saray would catch you or could catch you on the attribution rule so be aware of that lots of videos out there on that but be aware of that but if it's money that you know that person's made or whatever it is if it makes sense if it falls within the rules where the the person can.
Create a single or single life investment account and have that taxable income go to them makes a lot of sense on the joint side you know if you're able to split that income especially as you head into retirement it makes a lot of sense as well so again just to summarize there i know we kind of went all over the place but a joint.
Investment account is beneficial because you can split that income okay so if you make a thousand dollars a year in that account it's only five hundred dollars to each of you and potentially less if there's some capital gains there so keep that in mind you know joint investment account makes a lot of sense because you can split that income now the downside.
To a joint investment account there's two of them first off is the split income okay so if you're still working you're leading up to retirement and you take two spouses and one is a high income earner one's a low income earner and you need to split that income some of that income is going to be taxed at a very high marginal tax rate and one at a.
Very low tax rate it's not a very tax efficient process okay so that's one downside the other would be marital breakdown okay so if there's a marriage breakdown and there's a joint investment account and there's a large gain you know you have to factor that in potentially the account might have to be sold which.
Would trigger taxes or you have to somehow calculate that into you know when you split your assets and keep in mind that there's a gain there there's some tax to be due it just becomes a bit more convoluted so those would be the two downsides of creating a joint investment account where we see a bit of a red flag and potential no reason for.
Not doing it as a joint account so when we look at a single life investment account so someone you know it's under one person's name not both people's name there's some benefits to this so there's some flexibility on when you take that money out uh to allocate that income to one person so in retirement and this this fell into the.
Plan that we were doing for this couple okay so one of them had an investment account under their own name and they had quite a large gain on it and that was the high income earner another person didn't have any okay so what happened is in retirement and they were retiring early at 55 is as we pulled money out of there it was taxable only.
To the husband we couldn't allocate that to the wife that creates an issue and there's a quite a substantial taxable gain in there so this is the one downfall of that but on the flip side you could do some planning where you know they have some money that that could be allocated to hurt her money.
Set up an investment account with the additional cash that they have in just her name and what that would allow us to do is allow that account to grow and down the road pull it out so it's taxable just in her name we don't need to split that income okay so just be aware of that um it's especially uh important if you.
Retire before 65 or before you start some pension money okay so be aware of what type of income you can split in retirement okay rrsp money when you convert it to a riff you can only do income splitting in retirement with that money at 65 on so if a lot of your money is in an rrsp and you need to split some income before.
That or get more money or income allocated to the lower income earner before retirement then a single life individual investment account might be a good option again be aware of attribution rules that always comes into play here but maybe build up that non-registered under the lower income earner so if you retire at 55 and.
Have to start pulling money from your rsp which you cannot split the income from at least the lower income earner has this non-registered account they can pull money from and any taxable bill from there is only taxed in their hands so it helps kind of level out that tax bill um in early retirement so i just want to give my personal.
Feedback so not a tax feedback but personal feedback we would always recommend to do a joint non-registered account okay unless there's something that's really guiding us to do the single life which isn't usually the case we will almost 99 of the time do a joint investment account it creates more flexibility yes you have to split that.
Income so there might be a bit of a lopsided tax perspective leading up to retirement or early into retirement if you don't have split income options but doing that down the road just allowed again if one spouse passed away earlier the other person continues on there could be a large gain in there could save a lot of.
Tax again a lot of that tax bill we can even out over the years if it's in a single life and that person dies you're paying a whole lot of tax in one year which isn't beneficial um so again just leveling off tax splitting the income it creates more flexibility so if you're sitting there with some money um and you.
Have the option to do a joint investment account with your spouse or common law partner and it makes sense for you it probably is the best route to go okay unless something you know you put a plan together and 100 it makes sense to do a single life the majority of the time we recommend doing a combined or joint life investment account just create some nice.
Flexibility you know protects for if one of you passed away early and does allow for that income splitting and retirement so sitting there on sidelines that's the best way to structure the joint unregistered account moving forward so thanks for joining us in this video today again we've run into this actually.
Quite a bit the last month or so that's why we wanted to release this video i think it's actually more common than i thought it was so if you're sitting there with some cash you're not sure single life joint life how this works or maybe you have an investment account already and you're you know it's single life and.
You're kind of looking ahead saying should this be joint or not you might want to structure joint the client we were working with yesterday again he had a single life one with a large gain in it and that money was actually earned joint so they could have set it up as a joint investment account originally been able to split that income now would have.
Been much more fluid for them so you know if you're planning ahead you'll think about that joint life if it's an option for you so thanks for joining us in this video hopefully the background noise we have a construction site you know right behind us here they're building a new development uh i try to do my videos.
Before 7am so that that noise doesn't start but anyway we got a bit late today so anyway i hope you enjoyed the video today if you did hit the subscribe button hit the like button make a comment below if you have any questions concerns and we'll see in the next video