by Scott Ronalds
First Home Savings Accounts (FHSAs) are a great tool for young Canadians saving for a home, and for parents wishing to help their adult children get into the housing market. Indeed, parents can gift money to their children which can then be invested in an FHSA account in the child’s name. We’ve had several clients use them in this way.
FHSAs were introduced by the federal government earlier this year as a means of helping prospective first-time buyers save for a home. The FHSA shares attributes of the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP): any growth in an FHSA is tax-free, and eligible contributions can be deducted from your income when filing your tax return. We reviewed the key features of these plans in a previous post.
The annual contribution limit is $8,000, and any unused FHSA room at the end of the year can be carried forward. (Note: the maximum amount you can contribute in any given year is $16,000.) Yet, to be eligible to carry forward unused contribution room, you must have an open FHSA — thus, the benefit of opening an account before the end of the year, even if you do not plan to contribute the maximum amount.
This may not be the right approach for everyone, however. For example, if your expected home purchase date is well into the future, you may want to put off opening an account, as you can only hold an FHSA for 15 years. Another consideration is if your income is low, you could be better off investing in a TFSA, even if only for an interim period, as you won’t benefit much from a tax deduction (although you can claim the deduction in a future year when your income may be higher).
So, while FHSAs are valuable in many ways, the answer is not always a clear ‘yes’ as to whether you should open one. It’s highly dependent on your personal situation. We encourage you to speak to one of our Investor Specialists if you’re looking for advice. But don’t wait, as there can be real benefits to getting the clock started.
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