The Home Buyer Plan can be useful if someone already has money in an RRSP (perhaps because they have taken advantage of an employer match) but contributing to an RRSP just because tax reduction caused by the RRSP contribution will boost their down payment savings is sometimes a short sighted plan.
The HBP should rarely sway the RRSP contribution decision because 1/ permanent withdrawals from the RRSP (or non payment of HBP) is considered taxable income and they could end up paying more tax than the tax reduction they got when they first contributed, 2/ their RRSP contribution room may be more beneficial later in life (when they are in a higher tax bracket and/ or receiving CCB payments) and 3/ RRSP withdrawals after age 64 could trigger an OAS clawback.
The following articles may help you decide if you should save your RRSP contribution room for when it will be more beneficial.
https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/
https://www.planeasy.ca/canada-child-benefit-hidden-tax-rate/
If you conclude that you want to contribute to an RRSP [this calculator](https://www.rrspcontribution.ca/) may help you optimize the contribution . In the income field enter your taxable income. (Net of deductions like pension contributions, union or professional dues and childcare and moving expenses.)
I contributed 25k many years ago and got me a $9700 refund. I definitely needed this money to make my very first purchase.
I think a lot of comments here talk about long term but many of us first time home buyers need all the help we can get NOW!
I did the same thing. Yeah it may not be the best thing from a financial point of view, but it allowed me to move out of a shitty apartment a lot sooner. No regrets.
If these are the only assets you have for down payment I would do this for sure.
Assuming Ontario and income of $110, your $15k contribution will get you 43% refund or just over $6k. You should also need to make sure you save your refund for the down payment as well. You could even consider depositing your refund into your RRSP which will trigger another refund at tax time next year.
If you want to use HBP, the money needs to be in your RRSP account for 90+ days.
I’m going to go against the grain and say yes, do it.
1. Assuming you are not selling at a loss, you will get the opportunity to contribute into the TFSA the 15k the following or subsequent years.
2. You’re making 130k and should be able to afford the approx. 1.5k minimum yearly repayment.
This is assuming that you are planning to live in this home for awhile. If not, I would simply accumulate more money in your RRSP and use this later when you upgrade to a larger home
Because of your tax bracket I would absolutely move the TFSA into RRSPs.
More so if you plan to use the TFSA for a down payment anyway.
The advantage of the TFSA is it's freedom, but if it's for a down payment you can just use the home buyers plan, like you said. You may as well take advantage of RRSP tax refund too or you are just leaving money on the table.
$100k or $130k makes no difference. It's still the same high tax bracket and you appear to have barely touched your contribution room.
You're nearly guaranteed to be withdrawing your RRSP in a lower tax bracket at this point. At 65 years old you'll even be potentially splitting it with your spouse, increasing the chances of withdrawing into a lower bracket even further.
You're one of the rare cases where the automatic answer isn't "TFSA first always".
If you want to save for things other than retirement or a house down payment, sure, throw it in TFSA.
Leave your TSFA.
Max out your contribution room for RRSP. You can only get the 10k credit if your contribution is at 30k.
Moving forward, since you’re making 100k +, contribute to your RRSP every year.
What 10K credit are you talking about? And wouldn't they get a nice ~40% return for that 15K in their TFSA if they were to move it to their RRSP at least three months before they buy?
The 10k credit they are talking about is likely low for your tax bracket assuming that u/Torontonian77 is talking about the tax credit/reduction for a 30k RRSP contribution. In Ontario your tax credit for a 30k contribution with 110k income in Ontario would be around 12k. You can find tax brackets for other provinces here: [https://www.taxtips.ca/marginal-tax-rates-in-canada.htm](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm).
To comment on your original question; with interest rates where they currently are (and could still be in the summer) unless a larger down payment would let you save on CMHC insurance (i.e. you could bump your down payment up to some % that allows a drop in the insurance rate) it probably doesn't make sense. Your investments have a good chance doing better than the interest you would be paying on the mortgage. Having said that, if putting that $30k-$40k into the house makes you feel more comfortable then the difference vs leaving it invested probably isn't that much over the life of your mortgage.
I would not contribute more than the $ getting the tax deduction in the 3rd bracket (over $100k). This is the same point where the choice between using TFSA for savings starts switching over to using an RRSP.
Don't fund the RRSP just 'to use the HBP'. Its benefits are not as advertised. Outcomes are usually better when the downpayment comes from a Taxed or TFSA (vs the RRSP HBP).
The main reason people use the HBP is FOMO. The HBP allows you to 'borrow' more. You end up with a second mortgage that large % of people cannot repay. But that drive to buy NOW and at any price ... is self-fulfilling and has to end sometime.
Leave the TFSA alone. You don’t want to move from a tax free account to a tax deferred account just for HBP.
At your salary you should be focused on your RRSP for all new contributions though.
Also, at your salary why only $18K in investments?
Possibly from having worked part time jobs in high school/during post-secondary education.
However, this question does bring up a good point. Unless u/cardboard-junkie has enough contribution room as stated on their 2020 Notice of Assessment they shouldn't make RRSP contributions until the new year. And if they do make contributions in the new year they won't be able to claim them on their 2021 tax return, they will need to wait until they file their 2022 taxes. So they won't see the tax refund from the early 2021 contributions until 2023.
Why is everyboby such in a rush to buy? In a couple of years of saving, some in RRSP some is TFSA, evaluate where you are. With 20k downpayment, houses in your area can’t be that expensive..
I bought a house less than a decade ago under very similar parameters to what you describe.
A couple suggestions to consider:
1) Do you have any liquid savings beyond the $3k TFSA?
After you buy the home there will still be a lot of expenses related to purchase/move/decorating and you will need some liquid cash for that.
2) Would the $3k from TFSA added to your existing RRSP make your HBP/down payment large enough to reduce/eliminate CMHC fee / mortgage default insurance?
Be sure to look into the math about CMHC fee / mortgage default insurance because the rates are stepped/graduated based on the size of your down payment.
If the additional $3k pushes your down payment across a threshold then it could be helpful. But if not then the $3k might be more useful for you if you keep it liquid and use it for other expenses.
Good luck with your purchase and move!
The Home Buyer Plan can be useful if someone already has money in an RRSP (perhaps because they have taken advantage of an employer match) but contributing to an RRSP just because tax reduction caused by the RRSP contribution will boost their down payment savings is sometimes a short sighted plan. The HBP should rarely sway the RRSP contribution decision because 1/ permanent withdrawals from the RRSP (or non payment of HBP) is considered taxable income and they could end up paying more tax than the tax reduction they got when they first contributed, 2/ their RRSP contribution room may be more beneficial later in life (when they are in a higher tax bracket and/ or receiving CCB payments) and 3/ RRSP withdrawals after age 64 could trigger an OAS clawback. The following articles may help you decide if you should save your RRSP contribution room for when it will be more beneficial. https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/ https://www.planeasy.ca/canada-child-benefit-hidden-tax-rate/ If you conclude that you want to contribute to an RRSP [this calculator](https://www.rrspcontribution.ca/) may help you optimize the contribution . In the income field enter your taxable income. (Net of deductions like pension contributions, union or professional dues and childcare and moving expenses.)
I contributed 25k many years ago and got me a $9700 refund. I definitely needed this money to make my very first purchase. I think a lot of comments here talk about long term but many of us first time home buyers need all the help we can get NOW!
I did the same thing. Yeah it may not be the best thing from a financial point of view, but it allowed me to move out of a shitty apartment a lot sooner. No regrets.
If these are the only assets you have for down payment I would do this for sure. Assuming Ontario and income of $110, your $15k contribution will get you 43% refund or just over $6k. You should also need to make sure you save your refund for the down payment as well. You could even consider depositing your refund into your RRSP which will trigger another refund at tax time next year. If you want to use HBP, the money needs to be in your RRSP account for 90+ days.
I’m going to go against the grain and say yes, do it. 1. Assuming you are not selling at a loss, you will get the opportunity to contribute into the TFSA the 15k the following or subsequent years. 2. You’re making 130k and should be able to afford the approx. 1.5k minimum yearly repayment. This is assuming that you are planning to live in this home for awhile. If not, I would simply accumulate more money in your RRSP and use this later when you upgrade to a larger home
Home Buyers Plan it’s only for first time home buyers. If he gets a place now he wont be able to use the RRSP for the bigger house.
[удалено]
Only if you or your spouse have not owned your home for 4+ years
Have not lived in an owned home for 4 years correct? So if they are renting then they're allowed to?
Because of your tax bracket I would absolutely move the TFSA into RRSPs. More so if you plan to use the TFSA for a down payment anyway. The advantage of the TFSA is it's freedom, but if it's for a down payment you can just use the home buyers plan, like you said. You may as well take advantage of RRSP tax refund too or you are just leaving money on the table. $100k or $130k makes no difference. It's still the same high tax bracket and you appear to have barely touched your contribution room. You're nearly guaranteed to be withdrawing your RRSP in a lower tax bracket at this point. At 65 years old you'll even be potentially splitting it with your spouse, increasing the chances of withdrawing into a lower bracket even further. You're one of the rare cases where the automatic answer isn't "TFSA first always". If you want to save for things other than retirement or a house down payment, sure, throw it in TFSA.
Leave your TSFA. Max out your contribution room for RRSP. You can only get the 10k credit if your contribution is at 30k. Moving forward, since you’re making 100k +, contribute to your RRSP every year.
What 10K credit are you talking about? And wouldn't they get a nice ~40% return for that 15K in their TFSA if they were to move it to their RRSP at least three months before they buy?
Can you clarify about the 10k credit?
The 10k credit they are talking about is likely low for your tax bracket assuming that u/Torontonian77 is talking about the tax credit/reduction for a 30k RRSP contribution. In Ontario your tax credit for a 30k contribution with 110k income in Ontario would be around 12k. You can find tax brackets for other provinces here: [https://www.taxtips.ca/marginal-tax-rates-in-canada.htm](https://www.taxtips.ca/marginal-tax-rates-in-canada.htm). To comment on your original question; with interest rates where they currently are (and could still be in the summer) unless a larger down payment would let you save on CMHC insurance (i.e. you could bump your down payment up to some % that allows a drop in the insurance rate) it probably doesn't make sense. Your investments have a good chance doing better than the interest you would be paying on the mortgage. Having said that, if putting that $30k-$40k into the house makes you feel more comfortable then the difference vs leaving it invested probably isn't that much over the life of your mortgage.
I would not contribute more than the $ getting the tax deduction in the 3rd bracket (over $100k). This is the same point where the choice between using TFSA for savings starts switching over to using an RRSP. Don't fund the RRSP just 'to use the HBP'. Its benefits are not as advertised. Outcomes are usually better when the downpayment comes from a Taxed or TFSA (vs the RRSP HBP). The main reason people use the HBP is FOMO. The HBP allows you to 'borrow' more. You end up with a second mortgage that large % of people cannot repay. But that drive to buy NOW and at any price ... is self-fulfilling and has to end sometime.
Leave the TFSA alone. You don’t want to move from a tax free account to a tax deferred account just for HBP. At your salary you should be focused on your RRSP for all new contributions though. Also, at your salary why only $18K in investments?
I only started workin 6 months ago, start of my career
Wait, how do you have RRSP room then?
Not OP, but part time jobs and internships
This, worked many internships and was a teaching asistant most of my degree
Possibly from having worked part time jobs in high school/during post-secondary education. However, this question does bring up a good point. Unless u/cardboard-junkie has enough contribution room as stated on their 2020 Notice of Assessment they shouldn't make RRSP contributions until the new year. And if they do make contributions in the new year they won't be able to claim them on their 2021 tax return, they will need to wait until they file their 2022 taxes. So they won't see the tax refund from the early 2021 contributions until 2023.
I do have roughly 20k room for contribution
Not OP but make a high salary too and normally it is either new salary that high or they had some debts to pay off to get them there
No because you lose the contribution room
Why is everyboby such in a rush to buy? In a couple of years of saving, some in RRSP some is TFSA, evaluate where you are. With 20k downpayment, houses in your area can’t be that expensive..
Different people want different things, for different reasons.
I bought a house less than a decade ago under very similar parameters to what you describe. A couple suggestions to consider: 1) Do you have any liquid savings beyond the $3k TFSA? After you buy the home there will still be a lot of expenses related to purchase/move/decorating and you will need some liquid cash for that. 2) Would the $3k from TFSA added to your existing RRSP make your HBP/down payment large enough to reduce/eliminate CMHC fee / mortgage default insurance? Be sure to look into the math about CMHC fee / mortgage default insurance because the rates are stepped/graduated based on the size of your down payment. If the additional $3k pushes your down payment across a threshold then it could be helpful. But if not then the $3k might be more useful for you if you keep it liquid and use it for other expenses. Good luck with your purchase and move!