the broken typewriter

By Brad Brain

My two eldest kids are in university, and its too early for them to know what they are going to do and where they are going to live.

That doesn’t matter. I made them open a First Home Savings Account anyway.

FHSAs are that good. There is no reason for a lack of clarity about the future to be an excuse not to prepare for it.

Introduced in 2023, the FHSA is designed to help first-time homebuyers save for a down payment. It combines elements of both RRSPs and TFSAs, offering tax-deductible contributions and tax-free withdrawals for a home purchase. This tax friendly treatment is a tremendous mathematical advantage.

But here is the cool thing. You don’t need to buy a house to benefit from a FHSA! You may plan to rent for your entire lifetime, and you could still benefit from a FHSA.

This is because any money you don’t use for a house purchase can be rolled into your RRSP without affecting your RRSP contribution room. It’s an opportunity to super-size your RRSP, legally contributing up to $40,000 more than your RRSP contribution limit, as long as you are a first-time home buyer.

The reason I wanted my kids to get going as soon as possible is you start accumulating FHSA contribution room as soon as you open the account.

You can only carry forward $8000 of contribution room to use in a future year, so its not an unlimited benefit to start the FHSA as soon as possible. But starting early is unlikely to hurt you, and it is quite likely to help you to take full advantage of this wonderful planning opportunity. This is why my kids didn’t have a choice in the matter. They opened their accounts as soon as possible.

Here is how the features of FHSAs compare with RRSPs and TFSAs

First Home Savings Account (FHSA)

• Contribution Limit: Up to $8,000 per year, with a lifetime cap of $40,000.
• Tax Treatment: Contributions are tax-deductible, similar to an RRSP, and withdrawals for a home purchase are tax-free, like a TFSA.
• Withdrawal Rules: Funds must be used within 15 years of opening the account, or they can be transferred to an RRSP without penalty.

Registered Retirement Savings Plan (RRSP)

The RRSP is a long-standing retirement savings tool that allows Canadians to defer taxes while growing their investments. Unlike the FHSA, which is geared toward homebuyers, the RRSP’s primary focus is usually retirement planning.

• Contribution Limit: 18% of the previous year’s earned income, up to a maximum of $32,490 in 2025.
• Tax Treatment: Contributions are tax-deductible, reducing taxable income, but withdrawals are fully taxable.
• Withdrawal Rules: Funds are locked in until retirement unless accessed under programs like the Home Buyers’ Plan (HBP), which allows first-time homebuyers to withdraw up to $60,000 tax-free, provided it is repaid within 15 years.

Tax-Free Savings Account (TFSA)

Since its introduction in 2009, the TFSA has become a popular choice for Canadians due to its flexibility. Unlike the FHSA and RRSP, the TFSA is not tied to homeownership or retirement but can be used for any savings goal.

• Contribution Limit: Annual limit of $7,000 in 2025, with unused contribution room carrying forward.
• Tax Treatment: Contributions are not tax-deductible, but all investment growth and withdrawals are tax-free.
• Withdrawal Rules: Withdrawals can be made at any time without tax penalties, and amounts withdrawn can be re-contributed in future years.

The FHSA, RRSP, and TFSA are all great. Which option is best for you will depend on your objective.

If buying a first home is a priority, the FHSA is probably the first option, thanks to its combination of tax deductions and tax-free withdrawals.

If retirement savings is the focus, an RRSP provides the highest contribution limit and tax-deferral benefits.

If flexibility and accessibility are important, the TFSA is an excellent all-purpose savings tool.

The great part is that you don’t have to pick just one. For many people, using a combination of these accounts can give you some really great options to help get you from where you are now to where you want to be.

Brad Brain. CFP, R.F.P., CIM, TEP is a Certified Financial Planner in Fort St John, BC. This material is prepared for general circulation and may not reflect your individual financial circumstances. Brad can be reached at www.bradbrainfinancial.com.