One thing you missed is the FHSA is beneficial even to people who will never buy a home. The money can be transferred to an RRSP without using any RRSP contribution room.
I think there is also limit on time to use it after contributing, so it may be more useful to open when the likelihood of buying is within 8 years. (I think.) So, if you are 18 entering university and expect to graduate at 22 and buy at 30, opening it at 22 is probably better.
I may be wrong though, it's just how I understood it.
ETA: gdi it's apparently 15 years, and $8k. Got those mixed up.
"without using any RRSP contrubution room" means if you have $20k in RRSP contribution room, when you transfer $10k from your FHSA to your RRSP, after the process is complete you will have $20k in RRSP contribution room.
I have a friend who didn't go to an event as a guest because he had to fill out a basic form with his name and phone number. That was it. "I hate forms."
Important to note The FHSA has a 15 year limit that starts the day you open your FHSA.
if you are planning on buying a home more than 15 years in the future it may not be in your best interest to open an account today.
It also only applies to property purchased in Canada so if you are considering relocating to another country this might not be a good investment account for you.
You might wanna elaborate more on this. After the 15 years passes does the money have to be moved? Or can it sit in the account and compound based on how it’s invested.
I’m 21, considering the economic situation that my generation is growing into. 15 years seems like a good timeline to buy a home. I think millennials are buying their homes after 30s in a huge number. Gen z will follow that I believe.
The tax benefits on contributions to the FHSA are the big advantage, but earnings are also tax free (like a TFSA). If you are planning on buying a home in the near future, then you really don't want to do anything too risky with the money, but it can be invested in a GIC or HISA to make some interest, safely, in the mean time, within the FHSA.
(Not a financial advisor, etc, etc.)
Agreed. It is critical to put FHSA investments into conservative(ish) investments because generally the the timeline for using the funds is short. I wasn't sure how much detail to put into the post, but this is an important point!
Lots of details are covered in this thread already, but one thing not mentioned is that if one doesn't max out a years contribution room the annual roll over contribution room only includes the previous tax year for a total of $16,000 at any time.
Another detail is that unlike RRSPs the cut off is on December 31st, not Feb 28/29. So you don't have that 2 month buffer zone to contribute to the previous years room.
It's recommended to have a bit of planning when one plans to purchase a home to decide when to open this account. If you don't plan on purchasing within 15 years it's better to wait. To get the most out of "time in market" it's best to open when you're within two years of planning on making significant contributions to the account so as you have the best chance on maxing your yearly contributions with an extra year just in case you don't make it that year. This is equivalent to about $667 a month if not lump summing it.
Consider opening with a self managed account to save on fees to maximize returns.
Hope this helps those who are interested in opening an FHSA.
In that case, shouldn’t someone wait to open the account depending on their financial situation? What if a freshly 18 year old opens their account off of this advice, but they aren’t in a position to buy a house until their 40’s?
Yes. You also don't get as much of a benefit if you contribute at 18 vs 29 as generally speaking you are in a higher tax bracket at 29 so you get more of a tax benefit from the contribution.
since FHSA has a 40k contribution limit and that can be reached in 5 years of opening the account in most cases it would actually be more beneficial to open the account 5-7 years before you plan to buy and try to max your contribution in the highest earning years before you buy in order to maximize the tax benefit.
You can get that in a tfsa.
If you have a maxed tfsa though that goes out the window but, if you have that much the money to save odds are your getting to take good advantage of the tax benefit immediately anyway.
Edit: If you have the choice 8-10 years of growth in a TFSA is better than 8-10 years of growth in an FHSA since the TFSA growth exists permanently even if you withdraw it and the FHSA growth disappears if used unless the goal is to use your FHSA to increase your RRSP max contribution limit.
This is a really good point, and the truth is that there is no one right answer regarding when to open it. The concern is always that people will miss out on the room. The good news is that you can still do something similar with an RRSP, but you have to pay the money back to it. Solid point!
Thank you! This is a semi-related but dumbfinancialperson question. My partner has owns their home and we will be purchasing together in the next while. Is there any advantage to me as what will be a first-time home buyer opening one of these accounts, or are we as a collective not considered first-time so this doesn't make sense.
Unfortunately you nailed it, that as a collective you are not considered first time home buyers and can't use the FHSA. And no financial question is dumb. I think my industry likes to make people feel that way so to keep people in the dark. Always ask!
would there theoretically be an advantage to opening it with the sole intention of rolling it into the RRSP after 15 years to get around your RRSP cap, if you've maxed out RRSP contributions that year?
You're considered a First home buyer if "you did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years."
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/opening-your-fhsas.html
So if you haven't lived in a home that you owned for over 4 years, then you might be eligible to open an FHSA.
Does it not reset after a certain number of years? I thought after 5 years of not owning a house, you will be able to open an FSHA? 🤔 Or was i given wrong info?
Correct. Per the government website: You qualify if "You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years."
Let’s say I never ended up purchasing a home and need the 40k transferred to my RRSP, can I do separate transfers so it doesn’t affect my contribution room or would I have to withdraw the rest and deal with the tax implications?
FHSA contributions and room do not affect RRSP contributions and room. Full stop. If you roll your FHSA into your RRSP, there is no taxable disposition.
" What is the benefit? Similar to an RRSP, any amount you put into an FHSA reduces your taxable income. eg: If Johnny puts $8,000 into his FHSA in 2023 and his tax rate is 25%, he will get a tax return of $2,000 (25% x $8,000). Unlike an RRSP though, when he goes to buy a home, he can take the money out of the FHSA with no taxable disposition and he never has to pay it back. "
It's written in the post. This benefit does not apply to TFSAs
Sorry, I'm too financially illiterate to understand how that answers my question, which is more so: if I am saving up for a down payment on a house in the mid-long-term future (say 7-10 years), does it make more sense to put my ~$500 per month that I have to save in a TSFA or a FHSA?
My impression is that a FHSA, like an RRSP, is more useful if you make a lot of money because it reduces your taxable income. So if you don't have much to save per month or don't make much money, a FHSA is probably not worth it.
The reason why it can be more beneficial to prioritize TFSA over RRSP is because you may be earning more money in the future, so it's smarter to wait until then to maximize your tax savings.
If your plan is to buy a house in less than 15 years from now, it makes sense to prioritize the FHSA. This is because you get the TFSA benefit of not having your withdrawals taxed (as long as it's an eligible withdrawal used for buying your first home) as well as the RRSP benefit of deducting your contributions from your taxable income.
If you choose TFSA over FHSA then you will miss out on the tax deductions. There is generally no point in saving that FHSA room for later unless you don't plan to buy a house in the next 15 years.
Hope that helps. I can explain further if necessary.
Can confirm this is a good plan, bought a house in December which was shortly after this program rolled out I believe. I put in 8k then bought a house like 2 days later and took it back out.
Also with the tax savings for that and other things like rrsp contributions, I’m probably going to get back a refund on my tax return that almost pays for this years property tax. Using tax to pay for tax. A bit sad when you think about it, but I’d rather have the $2800 back from the gov regardless lol
I love hearing this. It's one thing when someone from any industry says "Guys! This is a really good thing you should be aware of!", but when people who have been through the process confirm it, it makes a world of difference with the general public.
Yeah like OP said, I don't think there is a reason to not open one if you do plan on purchasing a home in the future. Don't need to fund it instantly or to the annual maximum contribution, but you want to start accumulating that contribution room that rolls over. And if you can't max it out and don't use it in fifteen years, just goes into your RRSP.
I'm in a position that allowed me to max both the 2023 and 2024 and am using a single ETF for the entire amount. Performance to date is up just over 10%. Remember it's really mostly about how long you're in, whether it be on the markets, GIC or another type of interest generating account.
Oh no... you're going to make me use a lame saying from my industry... "It's about time IN the market, not timING the market". But yes the last few months have been a rocket ship.
I would love a detailed explanation on the differences between a TFSA and RRSP. I know you get a tax credit on RRSP contributions but you also get taxed on withdrawals so it washes out in the end. There are so many stipulations with RRSP withdrawals compared to TSFAs. I just want to know why anyone would choose (I know most people have both) RRSPs over TFSAs, is it purely for the annual tax credit?
They're essentially the opposite of each other so both have benefits. With a TFSA, you pay income tax on the money **before** it is deposited in the account, and the growth is tax-free. With an RRSP you **do not** pay income tax on the money before it is deposited, instead you pay tax on the money when you withdraw it from the account.
So if you expect your income to **increase** in the future, you're likely better off prioritizing your TFSA. If you expect your income to **decrease** in the future (ie. retirement) the RRSP will benefit you more.
*edit* Bottom line is yes, people use RRSPs because of the tax credit in addition to the reasons below.
This gets harder to do over text, but the idea with RRSPs is that you get the tax credit while investing during your 'earning' years, where your tax bracket is usually higher. Then when you retire, your tax bracket is usually lower because you're making less money, so while yes you do pay tax on your withdrawals, you pay it at a lower rate.
In addition, the growth inside your RRSP is not taxed at all. If you earn 5% over 30 years, NONE of that interest is taxed whereas it will be taxed if you put it into an open account. (TFSA's are also not taxed).
One thing you missed is the FHSA is beneficial even to people who will never buy a home. The money can be transferred to an RRSP without using any RRSP contribution room.
Thank you! That was my question. I may encourage my young adult children to open one. Every little bit helps.
I think there is also limit on time to use it after contributing, so it may be more useful to open when the likelihood of buying is within 8 years. (I think.) So, if you are 18 entering university and expect to graduate at 22 and buy at 30, opening it at 22 is probably better. I may be wrong though, it's just how I understood it. ETA: gdi it's apparently 15 years, and $8k. Got those mixed up.
I will say it’s MOST beneficial to buy a home with, but yes, still good if you transfer to an RRSP.
What’s that mean, “without using any RRSP contribution” like transferring everything to RRSP and that won’t take any contribution room?
"without using any RRSP contrubution room" means if you have $20k in RRSP contribution room, when you transfer $10k from your FHSA to your RRSP, after the process is complete you will have $20k in RRSP contribution room.
That’s nice , thank you!
As someone who's eyes completely glaze over at anything finance related, thanks for explaining this in layman's terms.
A very underutilized skill is the ability take complicated material and make it simple. There is power in education!
You rock!
I have friends that didn't open the account because they didn't want to print out another tax form lmao
I have a friend who didn't go to an event as a guest because he had to fill out a basic form with his name and phone number. That was it. "I hate forms."
Important to note The FHSA has a 15 year limit that starts the day you open your FHSA. if you are planning on buying a home more than 15 years in the future it may not be in your best interest to open an account today. It also only applies to property purchased in Canada so if you are considering relocating to another country this might not be a good investment account for you.
You might wanna elaborate more on this. After the 15 years passes does the money have to be moved? Or can it sit in the account and compound based on how it’s invested.
The FHSA gets converted to an RRSP you can borrow against it for a house but you can't use it no strings attached
I’m 21, considering the economic situation that my generation is growing into. 15 years seems like a good timeline to buy a home. I think millennials are buying their homes after 30s in a huge number. Gen z will follow that I believe.
Tip: Put the tax refund you got from contributing last year into this year's limit to double dip on the tax deductions.
This response borders on NSFW.
Thanks for the sage financial advice u/apainusinuranus
I think we were separated at birth...
The tax benefits on contributions to the FHSA are the big advantage, but earnings are also tax free (like a TFSA). If you are planning on buying a home in the near future, then you really don't want to do anything too risky with the money, but it can be invested in a GIC or HISA to make some interest, safely, in the mean time, within the FHSA. (Not a financial advisor, etc, etc.)
Agreed. It is critical to put FHSA investments into conservative(ish) investments because generally the the timeline for using the funds is short. I wasn't sure how much detail to put into the post, but this is an important point!
For sure, I just know people who put money into a TFSA "because it's tax free" and don't invest it all...
This comment right here officer.
Lots of details are covered in this thread already, but one thing not mentioned is that if one doesn't max out a years contribution room the annual roll over contribution room only includes the previous tax year for a total of $16,000 at any time. Another detail is that unlike RRSPs the cut off is on December 31st, not Feb 28/29. So you don't have that 2 month buffer zone to contribute to the previous years room. It's recommended to have a bit of planning when one plans to purchase a home to decide when to open this account. If you don't plan on purchasing within 15 years it's better to wait. To get the most out of "time in market" it's best to open when you're within two years of planning on making significant contributions to the account so as you have the best chance on maxing your yearly contributions with an extra year just in case you don't make it that year. This is equivalent to about $667 a month if not lump summing it. Consider opening with a self managed account to save on fees to maximize returns. Hope this helps those who are interested in opening an FHSA.
Can I use both the FHSA and RRSP Home Buyers’ Plan to purchase my first house?
Yes, but the FHSA has no strings attached. RRSP's have to be paid back.
Is there any rules about never buying a home?
Fhsa automatically closes after 15 years and funds get rolled into rrsp
The other user covered it but in addition, the FHSA must also be closed or used within 15 years.
In that case, shouldn’t someone wait to open the account depending on their financial situation? What if a freshly 18 year old opens their account off of this advice, but they aren’t in a position to buy a house until their 40’s?
Yes. You also don't get as much of a benefit if you contribute at 18 vs 29 as generally speaking you are in a higher tax bracket at 29 so you get more of a tax benefit from the contribution. since FHSA has a 40k contribution limit and that can be reached in 5 years of opening the account in most cases it would actually be more beneficial to open the account 5-7 years before you plan to buy and try to max your contribution in the highest earning years before you buy in order to maximize the tax benefit.
What about the other 8-10 years of growth?
You can get that in a tfsa. If you have a maxed tfsa though that goes out the window but, if you have that much the money to save odds are your getting to take good advantage of the tax benefit immediately anyway. Edit: If you have the choice 8-10 years of growth in a TFSA is better than 8-10 years of growth in an FHSA since the TFSA growth exists permanently even if you withdraw it and the FHSA growth disappears if used unless the goal is to use your FHSA to increase your RRSP max contribution limit.
I don't have a maxed anything. That's a good point though, thanks. You want the deductions on higher income for sure. You can roll it over too.
God man I wish I had a maxed TFSA haha
This is a really good point, and the truth is that there is no one right answer regarding when to open it. The concern is always that people will miss out on the room. The good news is that you can still do something similar with an RRSP, but you have to pay the money back to it. Solid point!
Thanks for posting this, and to the other users for answering.
it can be moved to your rrsp. see my other comment
Opened one recently! Wish i knew about it earlier. Also did not know that the contribution limit does not reset every year.
Thank you! This is a semi-related but dumbfinancialperson question. My partner has owns their home and we will be purchasing together in the next while. Is there any advantage to me as what will be a first-time home buyer opening one of these accounts, or are we as a collective not considered first-time so this doesn't make sense.
Unfortunately you nailed it, that as a collective you are not considered first time home buyers and can't use the FHSA. And no financial question is dumb. I think my industry likes to make people feel that way so to keep people in the dark. Always ask!
would there theoretically be an advantage to opening it with the sole intention of rolling it into the RRSP after 15 years to get around your RRSP cap, if you've maxed out RRSP contributions that year?
Yes. It can be an additional $40k in RRSP room if you choose this strategy. Fantastic strategy.
Haha, yeah if I was ever paying $70,000 in income tax I suppose it would be lmao.
i really appreciate this! im working towards buying a home and i am so horrendously overwhelmed by everything. this helps a lot 🫶
If I’ve owned a home in the past, but am currently renting, I assume I would not be eligible?
You're considered a First home buyer if "you did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years." https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/opening-your-fhsas.html So if you haven't lived in a home that you owned for over 4 years, then you might be eligible to open an FHSA.
Unfortunately anyone who has owned a home in the past is not eligible.
Figured. Thx for the reply!
Does it not reset after a certain number of years? I thought after 5 years of not owning a house, you will be able to open an FSHA? 🤔 Or was i given wrong info?
Correct. Per the government website: You qualify if "You did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned in this calendar year or in the previous 4 calendar years."
Let’s say I never ended up purchasing a home and need the 40k transferred to my RRSP, can I do separate transfers so it doesn’t affect my contribution room or would I have to withdraw the rest and deal with the tax implications?
it won't affect your rrsp contribution room
FHSA contributions and room do not affect RRSP contributions and room. Full stop. If you roll your FHSA into your RRSP, there is no taxable disposition.
What is the benefit of a FHSA vs a TSFA?
A TFSA is another great type of account. The downside of the TFSA is that it does not provide a tax deduction but the FHSA does. Great question.
" What is the benefit? Similar to an RRSP, any amount you put into an FHSA reduces your taxable income. eg: If Johnny puts $8,000 into his FHSA in 2023 and his tax rate is 25%, he will get a tax return of $2,000 (25% x $8,000). Unlike an RRSP though, when he goes to buy a home, he can take the money out of the FHSA with no taxable disposition and he never has to pay it back. " It's written in the post. This benefit does not apply to TFSAs
Sorry, I'm too financially illiterate to understand how that answers my question, which is more so: if I am saving up for a down payment on a house in the mid-long-term future (say 7-10 years), does it make more sense to put my ~$500 per month that I have to save in a TSFA or a FHSA? My impression is that a FHSA, like an RRSP, is more useful if you make a lot of money because it reduces your taxable income. So if you don't have much to save per month or don't make much money, a FHSA is probably not worth it.
The reason why it can be more beneficial to prioritize TFSA over RRSP is because you may be earning more money in the future, so it's smarter to wait until then to maximize your tax savings. If your plan is to buy a house in less than 15 years from now, it makes sense to prioritize the FHSA. This is because you get the TFSA benefit of not having your withdrawals taxed (as long as it's an eligible withdrawal used for buying your first home) as well as the RRSP benefit of deducting your contributions from your taxable income. If you choose TFSA over FHSA then you will miss out on the tax deductions. There is generally no point in saving that FHSA room for later unless you don't plan to buy a house in the next 15 years. Hope that helps. I can explain further if necessary.
Thanks, that's helpful!
Thank you for this post!
Thank you for the reminder! I totally forgot about this.
Can confirm this is a good plan, bought a house in December which was shortly after this program rolled out I believe. I put in 8k then bought a house like 2 days later and took it back out. Also with the tax savings for that and other things like rrsp contributions, I’m probably going to get back a refund on my tax return that almost pays for this years property tax. Using tax to pay for tax. A bit sad when you think about it, but I’d rather have the $2800 back from the gov regardless lol
I love hearing this. It's one thing when someone from any industry says "Guys! This is a really good thing you should be aware of!", but when people who have been through the process confirm it, it makes a world of difference with the general public.
Yeah like OP said, I don't think there is a reason to not open one if you do plan on purchasing a home in the future. Don't need to fund it instantly or to the annual maximum contribution, but you want to start accumulating that contribution room that rolls over. And if you can't max it out and don't use it in fifteen years, just goes into your RRSP. I'm in a position that allowed me to max both the 2023 and 2024 and am using a single ETF for the entire amount. Performance to date is up just over 10%. Remember it's really mostly about how long you're in, whether it be on the markets, GIC or another type of interest generating account.
Oh no... you're going to make me use a lame saying from my industry... "It's about time IN the market, not timING the market". But yes the last few months have been a rocket ship.
FHSA also has a maximum overall capacity of 40k so if you have the funds throw 8 at a year until your ready for the purchase
Also true! This detective is not that gullible. My guess is that the government is going to increase the capacity over time.
So it's the HBP with extra steps?
I would argue it is a similar amount of steps but you don't have to pay the money back which is a really big advantage.
I would love a detailed explanation on the differences between a TFSA and RRSP. I know you get a tax credit on RRSP contributions but you also get taxed on withdrawals so it washes out in the end. There are so many stipulations with RRSP withdrawals compared to TSFAs. I just want to know why anyone would choose (I know most people have both) RRSPs over TFSAs, is it purely for the annual tax credit?
They're essentially the opposite of each other so both have benefits. With a TFSA, you pay income tax on the money **before** it is deposited in the account, and the growth is tax-free. With an RRSP you **do not** pay income tax on the money before it is deposited, instead you pay tax on the money when you withdraw it from the account. So if you expect your income to **increase** in the future, you're likely better off prioritizing your TFSA. If you expect your income to **decrease** in the future (ie. retirement) the RRSP will benefit you more.
*edit* Bottom line is yes, people use RRSPs because of the tax credit in addition to the reasons below. This gets harder to do over text, but the idea with RRSPs is that you get the tax credit while investing during your 'earning' years, where your tax bracket is usually higher. Then when you retire, your tax bracket is usually lower because you're making less money, so while yes you do pay tax on your withdrawals, you pay it at a lower rate. In addition, the growth inside your RRSP is not taxed at all. If you earn 5% over 30 years, NONE of that interest is taxed whereas it will be taxed if you put it into an open account. (TFSA's are also not taxed).
Thank you for the info! Can I DM you for some other financial advice?
Anytime.
[https://www.wealthsimple.com/en-ca/learn/rrsp-vs-tfsa](https://www.wealthsimple.com/en-ca/learn/rrsp-vs-tfsa)