First Home Savings Account (FHSA) – Key Features & Tips
The First Home Savings Account (FHSA) is a powerful tax-advantaged savings tool for Canadians looking to buy their first home.
Here’s what you need to know to maximize its benefits:
FHSA Key Features:
✅ Tax-Free Contributions & Growth
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Contributions reduce taxable income (like an RRSP). Example $8000 in a 29% bracket = Saves $2320 in tax.
- Growth and withdrawals for a home purchase are tax-free (like a TFSA).
✅ Annual Contribution Limit
- $8,000 per year up to a lifetime max of $40,000.
- Unused contribution room carries forward (up to $8,000 per year).
✅ Investment Options
- Can hold cash, GICs, stocks, ETFs, mutual funds, etc.
- Allows tax-free investment growth, so investing wisely is key.
✅ Must Be a First-Time Home Buyer
- You “can’t have owned” a home in the current year or the past four years.
✅ Must Be Used Within 15 Years
- If unused after 15 years, funds must be transferred to an RRSP or RRIF (without affecting RRSP contribution limits) or withdrawn (taxed as income).
✅Can Be Combined With the Home Buyers’ Plan (HBP)
- You can use both the FHSA and RRSP Home Buyers’ Plan ($35,000 withdrawal limit for HBP).
FHSA Optimization Tips
💡 1. Max Out Contributions ASAP.
- Start early to maximize tax-free growth.
- Even if you don’t plan to buy soon, investing early helps your money grow.
💡 2. Invest Wisely
- Since home purchases are usually within 5-15 years, use a mix of:
- Low-risk investments (GICs, bonds) if buying soon.
- Growth-focused investments (ETFs, stocks) if buying later.
💡 3. Use Employer Matching (if available)
- Some employers may offer FHSA contributions as a benefit. Take advantage!
💡 4. Combine With a Partner
- If both partners open an FHSA, you can save up to $80,000 tax-free for your home.
💡 5. Transfer to RRSP If Unused
- If plans change, avoid tax penalties by transferring to your RRSP (without using RRSP room).
💡 6. Use It Alongside the TFSA
- If you've maxed out your TFSA, the FHSA is a great alternative for tax-free investment growth.
💡 7. Avoid Withdrawal Mistakes
- Only withdraw when purchasing a home, or you’ll pay tax on the withdrawal.
Who Should Open an FHSA?
✔ Anyone planning to buy their first home within the next 15 years.
✔ Those looking for an additional tax-sheltered investment account.
✔ People who want a risk-free RRSP transfer option if they don’t buy a home.
For information purposes only.
Details may change, please consult with a professional.
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