Which Account Should I Invest In First?

Which Account Should You Invest In First?

[vc_row][vc_column][vc_column_text]You’ve made it – you’re playing professional hockey and earning a paycheck. If you’ve read my previous articles,  and are doing some financial planning, you may have some excess cash to save and invest. The question then becomes – where can you invest this money? Which account should you invest in first?

The options, as a Canadian resident, are as follows:

  • Taxable “Non-Registered” Investment Account
  • Tax Free Savings Account (TFSA)
  • Registered Retirement Savings Plan (RRSP)

Let’s look at each option and determine what makes the most sense for you.


How are Investments Taxed?

Before we can decide on where to put our money, we must understand how our investments can be taxed in the first place. The goal of investing is to make money, and unfortunately, we must pay taxes on this money we make.

There are three ways you can earn money on an investment:

  • Interest
  • Dividends
  • Capital Gains

How these earnings are taxed varies – see these details here. What’s important for this article is how we can “shelter” our earnings from tax.


Taxable Account

Your first option is to open a regular investment account (often called a brokerage account, direct-investing account, or non-registered account). In this type of account, you can buy and sell all kinds of investments, like stocks and bonds, ETFs, and mutual funds. However, each year you will have to pay tax on any interest, dividends, or realized capital gains on your investments. The tax you pay will be a massive “drag” on your net investment returns.



Another option is to open a Tax-Free Savings Account. You’re able to open this type of account in the year you turn 18 years of age. Just like your taxable account, inside your TFSA, you can buy all kinds of investments such as stocks, bonds, ETFs, and mutual funds.

The beauty of the TFSA is that 100% of your investment earnings are TAX FREE. You won’t pay any tax on the interest, dividends, and capital gains earned in this account, and you’ll pay zero tax when you withdraw from the account either. That’s why this account is a “no-brainer” as an investor.

However, the only downside is the limited contribution room available. Here’s how it works:

  • In the year you open the account, you can contribute the annual limit, which as of 2023, is $6,500 per year.
  • If you do not use your annual contribution room, it is carried forward and can be used at a future date.
    • Here is a summary of TFSA limits based on birth year – TFSA Limits.
    • If you were born in the year 2000, and haven’t used a TFSA yet, you could contribute $36,000 today.
  • If you make a withdrawal from your TFSA, you get the room back the following year.
    • For example, you withdraw $10,000 on July 1st, 2023. On January 1st, 2024, your contribution limit will be $6,500 (the annual limit increase) plus $10,000 (the amount you withdrew in 2023).



The next option is the Registered Retirement Savings Plan. This account, like the TFSA, has tax benefits, but they are different.

When you contribute to your RRSP account, you can deduct that contribution from your income for the year.

For example, let’s say you earned $150,000 from your salary and bonus. This would be an approximate income for an entry-level contract player playing in the American League. If that player made a $20,000 RRSP contribution, his taxable income would reduce to $130,000 (thereby saving on taxes for that year).

Once the money is inside your RRSP account, you can invest it the same way you can with the TFSA and taxable accounts. Like the TFSA, you won’t pay any interest, dividends, or capital gains tax while the money is invested inside the RRSP. However, when you make a withdrawal from the account in the future, the withdrawal is considered taxable income.

That’s why we call the RRSP a “Tax-Deferred” account. You don’t pay tax while your investments grow, but you do pay tax in the future when you withdraw.

The RRSP account also has limits regarding how much you can contribute. You generate 18% of your income in contribution room annually. For example, earning $100,000 will generate $18,000 of contribution room for the following year. If you do not use all of your room, it can be carried forward like the TFSA; however, when you withdraw, you do not get that contribution room back.

The biggest benefit of the RRSP occurs if you make contributions in high-income earning years (while playing) and withdrawals in low-income earning years (while retired).


What’s Best?

What should you do? Quite simply, max out your registered accounts (TFSA and RRSP). If you’re playing in the NHL, you should have excess cash to invest, and as long as you aren’t spending egregiously, the goal should be to max out your TFSA and RRSP accounts annually. Unfortunately, you won’t be able to shelter 100% of your investment dollars because of the limits on the accounts – but that is a good problem to have.

Once they are maxed, the additional funds can be invested in your non-registered account. As your non-registered funds begin to accumulate, we can begin exploring additional options. Options such as real estate, RCA Trusts, and an insurance policy. The goal at this point is to diversify your assets and explore tax-beneficial investment opportunities.


Things To Consider

Tax residency must be considered. If you’re playing on a team in the U.S., you should communicate with your advisor or accountant regarding your tax residency. Find out what the implications are if you become a U.S. resident instead of a Canadian resident for tax purposes. This can affect which accounts are useful to you or not – and some tax planning can be done at this point. It may be beneficial for you to become a U.S. resident for tax purposes, even if it prohibits you from using the TFSA or RRSP accounts.




RBC Wealth Management | TFSA contribution limits by birth year (starting January 2023)

What is an RRSP (Registered Retirement Savings Plan) & How Does It Work? | TD Canada Trust

RRSPs: Know your limits | Sun Life Global Investments

Taxation of investments 101 – Investor education – Resources | Manulife Securities


Adam Henry is a Winnipeg based Financial Advisor with Harbourfront Wealth Management. His practice is tailored towards working with Professional Hockey Players who are looking for investment, cash-flow management, & tax advice. 

Disclaimer: The views expressed are those of Adam Henry, Investment Advisor and not necessarily those of Harbourfront Wealth Management Inc., member of the Canadian Investor Protection Fund, an IIROC Regulated Firm. 

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