FHSA or RRSP

FHSA vs RRSP: Which Is Better for Your First Home and Long-Term Wealth?

Buying a home in Canada is a major financial milestone, and two of the most powerful tools you can use are the First Home Savings Account (FHSA) and the Registered Retirement Savings Plan (RRSP). Both offer meaningful tax advantages, but they work differently and serve different goals. If you’re comparing FHSA and RRSP strategies, below is a breakdown to help you choose the right mix.

What is an FHSA?

The FHSA is a registered account designed specifically to help first-time homebuyers save for a down payment.

• Who qualifies: First-time buyers (you haven’t owned a home you lived in during the current year or previous four years).

• Contribution room: Up to $8,000 per year, with a lifetime limit of $40,000. Unused annual room can carry forward (up to $8,000).

• Tax treatment: Contributions are tax-deductible (like an RRSP), investments grow tax-free, and qualifying withdrawals for your first home are also tax-free.

• Deadline: Can stay open up to 15 years, or until Dec 31 of the year you turn 71, or the end of the year following your first qualifying withdrawal, whichever comes first.

Why it’s powerful: The FHSA combines the immediate tax deduction of an RRSP with the tax-free withdrawal of a TFSA, for your first home. That triple advantage makes “FHSA” a standout keyword for anyone saving for a down payment.

What is an RRSP?

The RRSP is a retirement-focused account with solid tax benefits.

• Contribution room: 18% of earned income from the previous year, up to the annual limit, plus carryforward of unused room.

• Tax treatment: Contributions are tax-deductible, growth is tax-deferred, and withdrawals in retirement are taxable income.

• Home Buyers’ Plan (HBP): You can withdraw up to a government-set limit under the HBP to buy/build a first home, tax-free at the time of withdrawal, provided you repay it over the required schedule.

Why it’s flexible: The RRSP can support both retirement and first-home goals through the HBP, but the HBP requires repayment. This is a key difference when comparing FHSA and RRSP options.

FHSA vs RRSP: Key Differences at a Glance

• Purpose:

  • FHSA: Built for first-time homebuyers.

  • RRSP: Built for retirement, with a homebuying exception (HBP).

• Tax on withdrawal:

  • FHSA: Qualifying first-home withdrawals are tax-free (no repayment).

  • RRSP (HBP): Withdrawals are tax-free initially but must be repaid over the schedule; missed repayments are taxable.

• Limits:

  • FHSA: $8,000/year, $40,000 lifetime.

  • RRSP: Larger, income-based room; potential for bigger contributions.

• Flexibility if plans change:

  • FHSA: If you don’t buy, you can transfer your FHSA balance to your RRSP or RRIF tax-free (no impact on RRSP room), keeping tax deferral intact.

  • RRSP: Always useful for retirement; HBP funds must be repaid.

• Stacking:

  • You can use both. Many first-time buyers pair FHSA (no repayment) with RRSP HBP (repayment required) to boost their down payment.

When to Prioritize FHSA

• You qualify as a first-time buyer and plan to purchase within 1–10 years.

• You want the strongest tax-efficient path to a down payment.

• You value tax-free withdrawals with no repayment requirement.

• You can invest for growth inside the FHSA (ETFs, GICs, mutual funds, etc.).

Pro tip: Max your FHSA first when saving for a first home. The combination of tax deduction in and tax-free out is uniquely strong.

When to Prioritize RRSP

• Your primary goal is retirement savings.

• You have significant RRSP room and high taxable income (the deduction can materially reduce your tax bill).

• You want the option to use the Home Buyers’ Plan later, and you’re comfortable with the repayment schedule.

Pro tip: If you receive a big tax refund from RRSP contributions, consider redirecting that refund into your FHSA or TFSA to accelerate your down payment.

Using FHSA and RRSP Together (Smart Combo)

• Max FHSA annually (up to $8,000; target the $40,000 lifetime max).

• Contribute to RRSP to reduce tax and build optional HBP capacity.

• Optimize your asset mix: Use conservative options if your purchase horizon is short (1–3 years), and balanced strategies if your horizon is longer (5–10 years).

Example: Contribute $8,000 to your FHSA, plus an RRSP amount aligned with your tax bracket. When ready to buy, withdraw from the FHSA tax-free and supplement with an HBP withdrawal from the RRSP if needed.

Common Questions About FHSA and RRSP

• Can I open an FHSA if I owned a home 5+ years ago? Yes, if you meet the first-time buyer definition based on the four-year lookback.

• What if I don’t buy a home? You can transfer FHSA funds to your RRSP/RRIF tax-free. No tax hit, no impact to RRSP room.

• Can I hold the same investments in both? Generally yes, both can hold GICs, ETFs, mutual funds, and more. Focus on time horizon and risk. Consult a Financial Planner for a customized investment portfolio.

Final Thoughts

If your next big goal is homeownership, the FHSA should usually come first. It’s built for first-time buyers and offers tax-deductible contributions, tax-free growth, and tax-free withdrawals, without the repayment obligations of the RRSP’s HBP. That said, the RRSP remains a cornerstone for long-term retirement planning and can still play a helpful supporting role in your home purchase strategy.

Free Professional Consultation

If you have any unanswered questions, uncertainties or would like to go over your specific financial needs and goals, please contact me at mike.a@reversemortgageportal.ca to set up a call. As a CPA, Chartered Professional Accountant, of over 20 years, I know the importance of understanding the full picture before making recommendations. I look forward to learning more about you and your financial needs so I can help you make the best decision.

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