The RRSP contribution deadline is looming – it’s March 2nd, 2015 – and I know I will be getting quite a few calls and emails from people scrambling to make a last minute decision on whether or not to max out their RRSP, because they expect to be buying a home soon. If you are a first-time homebuyer who has money sitting in RRSP, then The Home Buyers Plan is your go to guide. The HBP is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home. You can withdraw up to $25,000 in a calendar year. There are lots of benefits to contributing to your RRSP. The most important of these, from a first-time homebuyer perspective:
What if only one spouse has contributed? What if your spouse doesn’t have enough money in his or her RRSP to withdraw the entire $25,000? If one of you makes substantially more income than the other, and you expect this to continue for the foreseeable future, consider a spousal RRSP contribution..... The person contributing to the RRSP gets the tax deduction, but the person who will eventually benefit from the RRSP – the spouse – is the one who can withdraw it. What this means to you is that you can withdraw $25,000 from your own RRSP and your spouse can withdraw $25,000 from the spousal RRSP. Talk to a good financial planner to see if this would be a smart strategy for you.
Already have more than $25,000 in your RRSP? If you and your spouse already have more than $25,000 in your RRSPs, you may want to consider skipping your RRSP contribution this year. Putting your down payment funds into a Tax Free Savings account, GICs, or just a regular bank account, may make more sense, because once the money is in your RRSP, you can’t take more than $25,000 out for your home purchase without being taxed on it. Your unused RRSP contribution room will build up and you are allowed to catch up on contributions in future years. Again, seek the advice of an experienced financial planner. Timing is Important Keep in mind that if you’re planning to buy in the next 3 to 4 months, you have to time any RRSP withdrawal carefully. The money needs to have been sitting in your RRSP for at least 90 days in order for you to be able to use it for the Home Buyer Plan. Check out the official CRA website if you want to learn more about how spousal RRSPs work. As always, if you need more details on this topic or have any other questions, feel free to get in touch with me directly at 647-893-2535 or [email protected] Sign Up Here for Monthly Mortgage Updates
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