RRSP season is here and at this time of year, Canadians grapple with
issues about finding money to contribute, deciding what to invest in,
and determining whether to forfeit the RRSP contribution in lieu of the
‘saving for a house fund’. I am offering the following suggestions:
1. Short on money? Consider your home equity to maximize your RRSP contribution.
Higher real estate values may offer a chance for many to maximize their
RRSP contributions by tapping into existing home equity. Of the almost
$526 billion in RRSP room available to Canadians in 2006, only $74
billion was actually used, according to Statistics Canada. With a home
equity line of credit, a homeowner can withdraw funds at relatively low
interest rates on an as needed basis for the purpose of increasing RRSP
contributions, including unused contributions from previous years.
2. Planning to buy a home in 2008? Make a contribution to your RRSP.
Contribute to your RRSP, then use up to $20,000 ($40,000 per couple) of your plan’s accumulated assets to purchase or build a home. Under the Home Buyers’ Plan (HBP), the Canada Revenue Agency lets first time home buyers access their retirement savings without tax consequences. Funds in your RRSP from previous years may be accessed right away. Contributions made to your RRSP by March 1, 2008 can be withdrawn after a period of 90 days, and the resulting tax refund can be used towards a down payment.
Here is a basic overview of some of the rules for First Time Buyers under the Home Buyers' Plan:
- You must be considered a first time home buyer (i.e., you cannot have owned an owner occupied home in the previous five years).
- You must be a Canadian resident.
- The property purchased must be for a principal residence.
- The RRSP must be repaid within 15 years, with minimum annual payments of 1/15th of the withdrawn amount.
- Funds must have remained in your RRSPs for a minimum of 90 days before they can be withdrawn under the Home Buyers Plan.
- You will have to complete Form T1036, “Home Buyers Plan (HBP) – Request to Withdraw Funds from an RRSP,” available at the Canada Revenue Agency website www.cra-arc.gc.ca in the RRSP section.
Heather Paterson is an Accredited Mortgage Professional with Invis in Toronto. She practices in the area of Mortgage Financing. Email Heather