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Which is the best plan to save for your first house? The new First Home Savings Account, a TFSA, or an RRSP?
September 12, 2022 | Posted by: Marc Crossman
With housing prices still going through the roof, it’s not easy to save up enough for the down payment on your first house.
The federal government recently created the Tax-Free First Home Savings Account (FHSA), a third option for saving up a down payment tax-free, in addition to the Tax-Free Savings Account (TFSA) and the Home Buyers’ Plan (HPB).
Available starting in 2023, the FHSA helps prospective first-time homebuyers save up to $40,000, tax-free. The annual contribution limit is $8,000 per year.
Similar to an RRSP, you can deduct contributions to your FHSA from your taxable income, and your money will compound and grow tax-free. Fortunately, unlike an RRSP, you don’t have to pay taxes on the money when you take it out.
The FHSA can be used with a TFSA to help save more. By using both tax-free savings accounts, homebuyers will be able to save even more for a down payment.
Another option is the Home Buyers’ Plan, which allows you to withdraw from an RRSP for your first house tax-free, as long as you pay the money back to your RRSP.
So the HBP isn’t as appealing if you have at least five years to save, but it’s a great option if you’re buying a home immediately or in the next year.
If you have questions or want to get started give us a call today at 780 701 3888 or email marc@albertamortgagepros.ca, we’re here to help!
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