RRSP & First Time Home Buyers program | RRSPs and RRIFs | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
RRSP & First Time Home Buyers program
August 20, 2014
7:35 am
hello2adi
Member
Members
Forum Posts: 7
Member Since:
October 10, 2013
sp_UserOfflineSmall Offline

Hi Folks,
I was wondering if someone could help me how to make best use of RRSP money for first time home buyers.

I currently have around $80k sitting in my RRSP. My wife has no RRSP account.
We bought our first house in Nov and closing is in November this year.
We are planning to withdraw $25k from my RRSP to use as downpayment under the HBP program.

I have a question regarding the Spousal RRSP & HBP;
This house (the one we are closing in Nov 2014) is in my Name. If we decide to buy a house in future (5 years) on my wife's name, then will she be able to get another $25k under the HBP program or she will not as we have a house of our own?
Because if she wont be able to withdraw $25k in future under HBP then I think best use of our RRSP money is to withdraw $50k ($25k each) towards our house which we are closing in Nov this year.

Also, I wanted to know if I can open a Spousal RRSP account and transfer money into her account from my RRSP (currently sitting at $80K)?

Thanks,
Adi

August 20, 2014
9:11 am
kanaka
Member
Members
Forum Posts: 1232
Member Since:
December 23, 2011
sp_UserOfflineSmall Offline

Re...your transfer question. I would say you cannot as you claimed the RRSP contribution on your income tax.

August 20, 2014
9:21 am
hello2adi
Member
Members
Forum Posts: 7
Member Since:
October 10, 2013
sp_UserOfflineSmall Offline

Thanks Kanaka.

Upon reading more on the subject and speaking with Sunlife where I have my RRSP, i understand that my wife cannot use the $25K in future as long as she lives with me in my house as that will be her primary residence.

My question now is;
If I open a Spousal RRSP account and contribute around $25k to it (combined room of my wife and I for this year), can we withdraw $25k from her account also for our first home?
Like this we will be able to withdraw a total of $50k (25k each).

Thanks,
Adi

August 20, 2014
11:23 am
james1900
Member
Members
Forum Posts: 181
Member Since:
June 24, 2014
sp_UserOfflineSmall Offline

read some articles from RBC website:
http://www.rbcroyalbank.com/pr.....-plan.html

If your wife lives with you, the article appears to say, she can withdraw $25,000 from your RRSP for your first home (even it is in your name, it is you and your wife's first home). Not sure if I understand it correctly.

August 20, 2014
11:29 am
james1900
Member
Members
Forum Posts: 181
Member Since:
June 24, 2014
sp_UserOfflineSmall Offline

more articles:
http://www.cra-arc.gc.ca/tx/nd.....l-eng.html

It appears to say, you can't transfer money from your RRSP to your wife's RRSP (before RRSP owner's death).
But you can contribute to your wife's RRSP if you have RRSP contribution room using cash. Then you claim it as deductions in your next year's income tax.

August 20, 2014
11:38 am
Loonie
Member
Members
Forum Posts: 9182
Member Since:
October 21, 2013
sp_UserOnlineSmall Online

Really, you should phone CRA and ask them your questions. It's free, and you will get the answers that count, in the end. It's really easy to mess this up, which is why you are asking, and the consequences can be expensive if you do it wrong.

Not sure if you meant exactly what you said, but you can't combine yours and your wife's contribution room into a spousal RRSP. You would need one spousal RRSP and another one for her own and/or your own RRSP. CRA is very picky about this kind of thing.
When it comes to taking the money out, the rules are different for spousal RRSP versus your own, so therefore they can't be combined. Spousal cannot be taken out until a minimum number of years have elapsed without triggering tax - I think it's 3 years. As far as I know, there is no exemption on this for home purchase but you need to ask CRA directly.

August 20, 2014
12:05 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

Loonie, all good points. I am thinking about what Adi said that he wants to put RRSP money from his RRSP into his wife's, spousal RRSP.

He can't do that. You can't mix or combine your own RRSP with someone or others RRSP. He has to use non-registered, cash money to contribute to his wife's spousal RRSP.

Adi did not give information about if his wife is working or has her own taxable income. I am assuming that she does not have her own taxable income.

I am no tax expert but I know that someone with no taxable income in Canada can withdraw about $11,000 from their RRSP per year and they would pay little to no income taxes.

If Adi can build his wife's, spousal RRSP by making future spousal RRSP contributions, then almost $11,000 per year could be withdrawn from her spousal RRSP turned into cash and be used to help pay off their mortgage faster without paying much if no income taxes at all.

August 20, 2014
12:14 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

Adi, for example, paying off $11,000 from your mortgage compared to over a 25 year amortization period assuming a 3.00% mortgage rate would save $4,615 in total interest.

It would also cut your monthly payment by $52.05 per month. If mortgage rates increased to 4.00%, it would save you $6,358 in total interest and cut your mortgage payment by $57.86 per month.

August 20, 2014
12:18 pm
kanaka
Member
Members
Forum Posts: 1232
Member Since:
December 23, 2011
sp_UserOfflineSmall Offline

hello2adi said

Thanks Kanaka.

Upon reading more on the subject and speaking with Sunlife where I have my RRSP, i understand that my wife cannot use the $25K in future as long as she lives with me in my house as that will be her primary residence.

My question now is;
If I open a Spousal RRSP account and contribute around $25k to it (combined room of my wife and I for this year), can we withdraw $25k from her account also for our first home?
Like this we will be able to withdraw a total of $50k (25k each).

Thanks,
Adi

Just a dumb question.....if you contribute 25k to a spousal account why do you want to turn around and withdraw it? Keep in mind the last time I read the rules on a spousal withdrawal in the first two years is an income tax hit on the contributor (you). If between you and your wife if you have 25k room available in your TFSA's ...why not park it there until you buy a home?

August 20, 2014
12:47 pm
Loonie
Member
Members
Forum Posts: 9182
Member Since:
October 21, 2013
sp_UserOnlineSmall Online

kanaka said

Just a dumb question.....if you contribute 25k to a spousal account why do you want to turn around and withdraw it? Keep in mind the last time I read the rules on a spousal withdrawal in the first two years is an income tax hit on the contributor (you). If between you and your wife if you have 25k room available in your TFSA's ...why not park it there until you buy a home?

I'm getting a bit confused. Assuming you meant TFSA, and not RRSP, kanaka, I don't see that putting the money in TFSA (instead of RRSP?) would help in the long run. He says he's closing on the house purchase in 3 months. If he puts the money in TFSA now, he won't get hardly any tax-free interest, which would be the only benefit as I see it.

I don't really think there is anything in particular that he can do between now and November that will hold water with CRA, but he can always ask.

August 20, 2014
5:52 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

Loonie, if Adi made spousal RRSP contributions for his wife and then took his income tax refund deciding not to pay extra towards their mortgage but top up his and her TFSA.

This would make sense if they the interest rate differential was not much different 3.00% versus 2.8% for instance.

Also, the interest would accumulate income tax free and help them diversify away from having all their money in one illiquid asset which is their house and fully taxable RRSP's of $80,000 or whatever amount they would have.

I agree that in the next 3 or 4 months, not much would be achieved with TFSA's.

August 25, 2014
7:02 pm
Rick
Member
Members
Forum Posts: 1110
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

Just a note of caution. As I understand the HBP plan, you have to pay back the full amount into your RSP within 15 years. On a 50K withdrawal, that would be $3333.33 per year that you HAVE to contribute to your RSP with NO tax benefit. If you want a tax deduction, you have to contribute over and above the 33333 to get any deduction from your income. Thats a big chunk of change for most new home owners that take on a mortgage, property tax, house insurance and all the unexpected items that always pop up in life when you own a home. So please be careful....

August 25, 2014
7:34 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

Rick, good point about repaying the $3,333 per year on $50,000 HBP. I think a better approach is a balance of paying off the mortgage but saving, investing in RRSP's, TFSA's, GIC's etc. makes more sense with less stress on overall expenses, costs when owing a home.

If $3,333 per year is not paid back into the HBP then it could cost $1,000 or more in extra annual income taxes.

August 26, 2014
9:43 am
james1900
Member
Members
Forum Posts: 181
Member Since:
June 24, 2014
sp_UserOfflineSmall Offline

It serves like a no-interest loan. Any bank or anyone's willing to lend me 50k and I pay back 3333 in 15 years?

August 26, 2014
3:28 pm
Jack Manning
Member
Banned
Forum Posts: 379
Member Since:
August 5, 2014
sp_UserOfflineSmall Offline

James1988, you have to look at the interest you are saving by not having a bigger mortgage, possibly CMHC premiums, versus what you can earn, interest, dividends etc. depending on your risk tolerance and investments.

Another 3 factors are the good impact of compounding of interest, rates of return in your RRSP which you do not get paying off a mortgage.

You have to weigh that more money is tied up in an illiquid asset called real estate, primary residence versus financial investments that will be needed down the road for retirement and other financial needs, car purchase, education costs, rising cost of living in general.

A bigger or more expensive house, condo will cost more to maintain, repair plus all the property taxes, utilities+H.S.T on many costs and insurance etc.

August 26, 2014
6:10 pm
Rick
Member
Members
Forum Posts: 1110
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

If you take advantage of the 2 year grace period before you start repaying your HBP, that's over 2500.00 in lost interest right there at 2.5%. All I'm saying is don't cut your budget so razor thin you get yourself in a jam. There's ALWAYS unexpected expenses that come with owning a home. If you depend on a tax refund from your RSP contributions, your contributions will have to go WAAAAAY up to meet the minimum repayment AND get a tax refund. Most people can't afford maximum RSP contributions as it is. My advice would be to leave it where it is, if at all possible, and use it for what it was intended for.....your retirement. Not sure how old you are, but 50K would be a nice sum compounded over 20 or 30 years. Take 17 years off...not so much. When you own a house, it is sooooooooooo easy to get into trouble when your monthly expenses start to exceed your monthly income. Job or health of either one of you goes south, you don't need to worry about repaying your HBP on top of that. When I was younger with my first house and a pregnant wife, I lost my job and she was off on maternity. Thankfully, I could see it coming and was able to build an income suite to help carry us over until I found more work. Sorry if it seems like a lecture. My relative is going through that situation right now. Great to have a place of your own. Sux when you have to give up the extras in life to pay off your HBP, and she only withdrew 15K. She's doing better now in her 4th year, but reality slapped her pretty hard in the first couple years.

Please write your comments in the forum.