The dream of owning a home is one that many Canadians share. However, saving for a down payment can be a daunting task. In an effort to support aspiring homeowners, I am excited to announce the launch of First Home Savings Accounts (FHSAs) through my dealer, Investia. In this blog post I will provide you with an overview of this innovative savings option and explain how it can help you realize your homeownership goals.
To be eligible for an FHSA, you must meet the following requirements:
- You must be a Canadian resident.
- You must be an adult between the ages of 19 (in BC) and 71.
- Neither you nor your spouse or common-law partner can have owned a home that served as your principal residence in the current calendar year or the previous four calendar years.
The Benefits of FHSA
The FHSA presents a unique opportunity by combining the advantages of both Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). Key benefits include:
- Tax Deductions: Similar to RRSPs, contributions made to an FHSA are eligible for a tax deduction in the year they are made.
- Tax-Free Growth: Like TFSAs, both the growth and eligible withdrawals from an FHSA are entirely tax-free. This makes it an ideal tax-efficient savings vehicle.
- The FHSA allows you to contribute a maximum of $8,000 per year, with a lifetime contribution limit of $40,000. Although this amount may seem modest for a home purchase, it is important to consider the potential growth of your investments. Additionally, if applicable, your spouse’s FHSA can also contribute towards your savings goal. Furthermore, the Home Buyers Plan (HBP) enables you to use funds from your RRSP to contribute to your down payment.
- Contribution Space and Flexibility: If you are unable to maximize the $8,000 annual contribution limit, the unused contribution space can be carried forward to a maximum of $16,000 in any given year.
- Contributing on Behalf of Others: While you cannot directly contribute to someone else’s FHSA, you can give money to your adult child or grandchild to contribute to their own FHSA, assuming they are eligible.
It’s essential to note a few crucial rules regarding FHSAs:
- Closure and Transfers: FHSAs need to be closed 15 years after opening or at age 71. If you haven’t used the savings for a home purchase within this timeframe, you can transfer the funds into your RRSP as a tax-sheltered transfer.
- Qualifying Withdrawals: Once you make a qualifying withdrawal to pay for a home, the FHSA must be closed by December 31 of the following year.
- Tax Implications: Withdrawing money from an FHSA for purposes other than a home purchase will result in full taxation of the withdrawal.
The First Home Savings Account (FHSA) provides a valuable opportunity for aspiring homeowners to save for their first home while benefiting from tax advantages. If you are interested in learning more about the FHSA and how it can align with your financial goals, I encourage you to reach out. I am always available to discuss this exciting savings option and help you embark on your journey toward affordable homeownership. Contact me today for personalized guidance and assistance.