First Time Home Buyer's Plan (Using Down Payment Funds from your RRSP)

The Home Buyers' Plan is a program in Canada that allows first time home buyers to withdraw funds from their Registered Retirement Savings Plans (or RRSPs) to buy or build a qualifying home.

How does it work?

The Home Buyers’ Plan allows you to take out this money from your RRSP and then pay back the withdrawn funds (basically to yourself) within a 15-year period. If you pay back the whole amount in that time, you don’t have to pay any tax.

When I’m explaining this to clients, I get a lot of questions like, what tax am I talking about? The answer is - income tax. As you know, in Canada, we pay tax on our earnings and income. When you pay money into an RRSP, that amount gets deducted from your income amount that year, thereby decreasing your taxable income for the year and decreasing your income tax liability. So let’s say you put 5K into your RRSP last year… you will not be paying any income tax on that 5K. RRSP savings are your before-tax savings.

Now, if you take funds out of your RRSP for your down payment, and pay it back within 15 years, you retain this tax benefit. But if you don't pay it back within 15 years, you’ll have to pay income tax on it.

How much can you withdraw?

If you’re a first time buyer, you can withdraw up to $35,000 from your RRSPs, provided that you have put 35K in an RRSP. If you only have a total of 10K in your RRSPs, then you’d get to take out just the 10K. The limit per person is 35K, so if you and another person are both buying your first home together, you can get access up to $70,000 to help finance the down payment on your first home. This example applies to a typical, first time buyer couple. Hypothetically, if a group of 10 friends who are all first time buyers and all have money in their RRSPs can withdraw up to 35K each, and come up with a down payment of $350,000K. Hypothetically.

From where can I withdraw the funds?

You can withdraw funds from more than one RRSP, as long as you are the owner of each RRSP account. So you may have just 1 RRSP policy, and your spouse may have 2 different ones… as long as the total per person does not exceed 35K, you’re golden.

Some RRSPs, such as locked-in RRSPs or group RRSPs through a company or organization, do not allow you to withdraw funds from them - so this is something you can find out by looking at your policy or discussing it with your financial advisor.

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