How to Save for Your First Home with an FHSA

If you are dreaming of buying your first home, you may be wondering how to save enough money for a down payment and closing costs. Saving for a home can be challenging, especially in today's competitive housing market. But there is a new way to help you reach your goal faster: the First Home Savings Account (FHSA).

What is an FHSA?

An FHSA is a registered plan that allows you to save for your first home tax-free (up to certain limits). It was introduced by the federal government in 2022 and will be available starting April 1, 2023. You can open an FHSA if you meet the following criteria:

• You are at least 18 years old and have a Social Insurance Number (SIN)

• You have not owned a home where you lived this year or at any time in the preceding four calendar years

• You intend to buy a qualifying home in Canada that will be your principal residence within four years of withdrawing funds from your FHSA

How does an FHSA work?

An FHSA works like a combination of an RRSP and a TFSA. You can contribute up to $8,000 per year to your FHSA and deduct your contributions from your income tax (up to your available contribution room). Your contribution room is based on your income and unused room from previous years. You can carry forward any unused contribution room indefinitely.

The money in your FHSA grows tax-free, meaning you don't pay any taxes on the interest, dividends, or capital gains earned by your investments. You can choose from a variety of investment options to suit your risk tolerance and time horizon.

When you are ready to buy your first home, you can withdraw up to $40,000 from your FHSA tax-free (as long as you meet the eligibility criteria). You have to use the funds within 120 days of withdrawing them and report the withdrawal on your income tax return. You don't have to repay the amount you withdraw, unlike the Home Buyers' Plan (HBP).

What are the benefits of an FHSA?

An FHSA offers several benefits for first-time home buyers, such as:

• Reducing your taxable income by deducting your contributions

• Growing your savings faster by avoiding taxes on investment earnings

• Accessing your money tax-free when you need it for your home purchase

• Complementing other savings plans, such as the HBP and the TFSA

For example, let's say you want to buy a home that costs $800,000 and you need a 10% down payment ($80,000). You have $20,000 in your TFSA and $20,000 in your RRSP. You decide to open an FHSA and contribute $8,000 per year for five years. Assuming a 5% annual return on your investments, here's how much you could save with an FHSA compared to a non-registered account:

As you can see, by using an FHSA, you could save an extra $2,701 in taxes and have more money for your down payment.

How can I open an FHSA?

You can open an FHSA at most participating financial institutions. At Founders Wealth, we offer a range of investment options for your FHSA. Our advisors can help you create a personalized savings plan that fits your budget and goals.

To learn more about how an FHSA can help you save for your first home, visit our website at founderswealth.ca or contact us today.