Top Facts About RRSP Home Buyer’s Plan

Every Canadian knows that if they want to save up for when they retire, putting their funds into a Registered Retirement Savings Plan (RRSP). It is an incredible tool to help individuals accumulate their Savings. There is virtually no tax charged on any amount put into these accounts, nor is it charged on any interest it generates down the line. Individuals that put their funds in an RRSP account can certainly enjoy not paying tax on their funds while also accumulating interest until such time that they decide to withdraw from this account.

That brings us to the point of this post, and that is: can you use your RRSP funds to help with a down-payment on your first property in Canada?

The idea is that the funds need to stay in your RRSP account until you are of age to retire so that you are financially secure. Individuals that withdraw their funds earlier have to pay penalties for early withdrawals. However, the RRSP Home Buyer’s Plan (HBP) serves as an exception to the rule. We know it is pretty confusing so just bear with us while explaining it to you. With this plan, you can take out as much as $35,000 from your RRSP account if you intend to help pay for a down payment on a home.

You must be mindful of a few factors when you withdraw from your RRSP account.

Maximum Withdrawal Limits

The maximum withdrawal amount was $25,000 in March of 2019 but has since been increased to $35,000. If you purchase a home with your spouse, you may be able to withdraw twice that from your RRSP accounts.

90-Day Rule

We have all heard of the 5-second rule. So, what is the 90-day rule? The amount you withdraw from your retirement funds should have been in your account for a minimum of 90 days.

When You Can & When You Can’t

You can certainly apply to withdraw funds from your RRSP account before you build or buy a new property, but there are a few conditions you must adhere to. You must have a written agreement that you will be purchasing a property and be a Canadian resident.

Multiple RRSPs

You can withdraw from as many RRSP accounts as you’d like, but you must be the account holder of all of those plans. You must adhere to the maximum amount withdrawal limit. If you have a locked-in RRSP or a group RRSP, likely, you will not be able to withdraw any amount from it, even to buy a house.

Repaying The Amount

You must make your first repayment two years after your withdrawal, but the full amount must be repaid in 15 years.

Minimum Payments

If you fail to make the minimum payment one year, you have to declare that you did not pay back the minimum RRSP amount on your taxes. You will then be taxed on that amount.

If you wish to find out more, contact Kyle Adams of Adam’s Mortgage Team now at kyle.adams@ontariolendingsolutions.com .