There’s an acronym that keeps popping up recently: RRSP. Unsure of what an RRSP is and how they can help you when buying your first home? Well, you’ve come to the right place. Here’s a quick crash course on RRSPs and how they can make a huge impact on your financial planning strategy.
What is an RRSP?
Perhaps you’ve already heard of an RRSP. But why are they coming up so much recently? An RRSP – also known as Registered Retirement Savings Plan – is an account created by the Canadian government in order to assist and motivate citizens to save money for their retirement. They’ve existed since 1957 and the main benefit of an RRSP is that it’s what is known as a “tax-advantaged” account. In other words, the government provides a tax break to those who invest money into these accounts.
In other, “other” words: free government money.
Well, not completely free.
RRSP accounts are tax-deferred which just means that any money you contribute to this account will be exempted from Canada Revenue Agency (CRA) taxes the year you make the deposit. You don’t have to pay taxes on this until years down the line when you retire, and your tax rate is lower.
There are however some rules when it comes to RRSP accounts. There is only a certain amount you can contribute in one year. Whichever one works out to be smaller, you can either contribute 18% of your income from last year or a maximum amount.
Why is this important when looking for a home?
You may think that once your money is in your RRSP account, there is no seeing it until the day you retire – not without major repercussions at least. However, there’s a nifty exception to this which is known as the Home Buyers Plan (HBP). HBP is a program for first time home buyers that allows them to withdraw up to $25,000 from their RRSP account to use towards a down payment on their first home. The perk? It’s tax-free.
One important thing to keep in mind though is always to reach out to a financial advisor or mortgage broker first to see if this is the right option for you. In some cases, it may be better to look into TSFA accounts for one reason or another.
Why do I keep hearing about RRSPs recently?
The reason why RRSPs are the topic of conversation recently is because if you haven’t done so yet, the deadline to contribute to your RRSP account is March 2, 2020.
If you’re interested in learning more about RRSPs and how they can benefit you, contact me today! It’s important to carefully review your financial standing and take into consideration the amount of debt you currently have when looking to secure a mortgage. Let’s talk more about whether investing your hard-earned money into RRSPs to help you put money down on your first home is the right option for you. Call me, Darren Robinson at 705-315-0516 and let me help you invest your money the smart way, using your savings to their fullest potential.