Gabriel Lalonde
May 06th, 2024

Tax-Free Investments When You’re Out Of RRSP And TFSA Room

Once you’ve reached the maximum contribution limits of your RRSP and TFSA, it’s crucial to understand the significance of investing your funds to minimize your investment taxes. Taxes can significantly eat into your investment returns, so exploring tax-deferred or tax-free investments is essential. These investments exempt you from paying taxes or defer the taxes on your earnings, allowing you to keep more of your money.

Lowering Investment Taxes

Most tax-free investment options aren’t really tax-free. Instead, they allow you to defer or lower your taxes, but don’t eliminate them. The TFSA, for example, doesn’t give you an income tax reduction when you contribute to the account, but you won’t pay taxes on any contributions or earnings you withdraw from the account.

Contributing to your RRSP provides an income tax deduction, and the money grows tax-free as long as it remains in the plan. However, you’ll pay tax on any principal or earnings you withdraw from your RRSP at your marginal tax rate.

Reducing taxes on your investments can help you grow and preserve your wealth. The TFSA is one of the best tax-free investment options because it allows your deposits to grow without tax, but, like the RRSP, it’s subject to maximum contribution limits.

People usually invest in non-registered accounts after they’ve maxed out their RRSPs and TFSAs. Another investment option to consider is a Participating Whole Life Policy. This is a life insurance policy that offers several guarantees and tax benefits.

Non-registered investments

Taxes on non-registered investments vary depending on the type of investment you choose. Assets that pay interest, like Guaranteed Investment Certificates or high-interest savings accounts, are taxed at the highest rate, while dividends and capital gains are more tax-efficient. Non-registered investments can play an important role in your portfolio, but typically don’t offer tax-free investments or tax-deferred investments.

Participating whole life insurance policy

A participating life insurance policy is more than just life insurance. It offers policyholders the potential of several great benefits:

  • A guaranteed death benefit.
  • Guaranteed premiums.
  • Multiple ways to manage your premium payments.
  • A tax-deferred cash surrender value (CSV) you can withdraw or use as collateral for a loan.
  • The possibility to earn dividends.

Death benefit

As long as you’ve paid your premiums, your beneficiaries will receive the policy’s payout amount when you pass away. These funds are tax-free; your beneficiaries can use them as they wish.

Guaranteed premiums

Your premiums stay the same for as long as you own the policy. With a participating life insurance policy, some of your premiums pay for the death benefit, and the balance is used to build your cash surrender value. As you age, insurance becomes more expensive, so more of your premium will go to the death benefit component and less to build the policy’s cash surrender value.

Multiple ways to manage your premiums

With a participating life insurance policy, you can pay off your premiums in 10 or 20 years. Once your policy is paid, you no longer have to make life insurance payments. Alternatively, you can continue to make payments for the entire time you have the policy in place. If you receive dividends, you can put them towards your payments to lower them.

Cash surrender value (CSV)

The CSV grows tax-deferred, subject to certain conditions, which is why many investors use a participating life insurance policy when they run out of TFSA and RRSP room. The CSV can be withdrawn as cash, used as collateral for a loan or left to grow in the policy.

Earn dividends

Participating life insurance can pay dividends, although dividends aren’t guaranteed. Any dividends you receive can increase the policy’s benefit amount, reduce premiums, increase the cash value, or grow in a separate account.

Is a Participating Whole Life Insurance Policy Right For You?

Tax-free investments are almost impossible to find, but there are options available that allow you to defer or minimize your taxes. A participating life insurance policy can help you defer your taxes, but these policies have some drawbacks.

They are more costly than term insurance, and returns aren’t guaranteed. Developing a significant CSV in a policy can also take a long time.

Expert advice is essential when deciding whether to purchase a participating life insurance policy or to look for alternatives. At MDL Financial, we provide expert advice tailored to your needs. Please contact us to book an appointment so we can work together to help you meet your goals.


Are participating life insurance policies tax-free investments?

Participating life insurance policies are tax-deferred investments. The cash can be subject to taxation under certain circumstances.

Is a participating life policy better than term insurance?

Choosing between term insurance and a participating life insurance policy can be difficult. It depends on your goals and what you need your life insurance policy to do. Advice from our experts at MDL Financial will help you make the best decision to accomplish your objectives.

How much does a participating life insurance policy cost?

The cost of your policy depends on several factors, including your age, occupation, gender, and policy amount.

How will I know if this is the best life insurance policy for me?

Professional advice from a licensed financial advisor will help you make the right choice. At MDL Financial, we will work with you to understand your circumstances and goals and give you the best advice for your needs.

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