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Under the RRSP account, Canadians also have access to the Home Buyers’ Plan (HBP), which allows first-time home
purchasers to withdraw $35,000 tax-free dollars from their RRSP towards buying a home. However, those withdrawn
funds must be paid back within a 15-year period. If you don’t, you will be subsequently taxed on it, Macmillan notes.
“In terms of account types, I think most people gravitate towards using their RRSP and the First-Time Home Buyers’
Plan,” says Moorhouse. “This can be a great option if you already have money in your RRSP and don’t mind borrowing
from it to buy a home.”
Tax-Free Savings Account (TFSA)

A TFSA is a tax-sheltered account that allows users to hold a variety of investments.
Unlike an RRSP, a TFSA won’t offer you any up-front tax breaks, but any savings you put into the account can grow
tax-free. Whenever you want to withdraw money from your TFSA, those funds are also exempt from taxes. Similar to
an RRSP, however, a TFSA will only allow you to contribute a specific amount of funds each year. In 2022, the TFSA
contribution limit is $6,000.
“It permits those tax-free withdrawals. You can use them for anything. It doesn’t really have many constraints, but it
allows you to also use various investment vehicles,” says Macmillan. “You can choose to do something more risky with
stocks, or go based on your own risk appetite and look at (guaranteed investment certificates) or mutual funds and
things deemed less risky.”

Whether you use a TFSA or an RRSP, Moorhouse says it’s key to actually invest your money when you use one of these
accounts.

“Too often people think putting cash into an RRSP or TFSA means they’ve done their duty and are investing wisely.
But later on they find out that the whole time the money was just sitting in cash,” she says. “You need to actually invest
it, which could mean working with an advisor to manage your portfolio for you, using a robo-advisor and investing in
one of their portfolios, or investing on your own using a discount brokerage.”

First Home Savings Account (FHSA)
One of the newest types of investment savings accounts on the market, the tax-free FHSA was unveiled in April as
part of the federal government’s 2022 budget, and will be made available in 2023.
Marrying together some of the features of a TFSA and RRSP, Macmillan says the main goal of the FHSA is to help more
Canadians purchase their first home and make ownership more accessible.
“Some of the key things to keep in mind with this, and what we’ve heard so far, is deposits and withdrawals are free.
So you won’t be taxed on them, and money that’s withdrawn or any investment growth is not taxed,” Macmillan
explains. “Similar to TFSA and RRSPs—and this is really what people are saying about it—it allows account holders
to store it as cash, and it combines the benefits of a TFSA and an RRSP. This is specifically for buying your first home.”

Just like a TFSA or an RRSP, the amount of money you can contribute to an FHSA is capped annually. Users can put up
to $8,000 a year into an FHSA, up to a lifetime maximum of $40,000. An FHSA can also only be opened for 15 years,
according to Macmillan. Should you not max out the contribution amount every year, it’s lost and can’t be carried
forward unlike a TFSA. However, there’s no obligation to repay the amount withdrawn you’re using towards your first
home like the RRSP Home Buyers’ Plan. If you don’t use your FHSA funds to buy a home, Macmillan says the money
can be transferred into an RRSP or a Registered Retirement Income Fund (RRIF).
When it comes to using investment savings accounts to create a down payment, Moorhouse said it’s possible to use
multiple types of accounts towards your savings goal.
“Often people will start with one account, like their RRSP, then when they max that out, move onto saving through
their TFSA,” said Moorhouse. “Then once that’s maxed out, use a taxable account. And next year when the FHSA is
available, they can use that too. However, they won’t be able to use it in conjunction with their RRSP, as per the rules.”

The information discussed in this article should not be taken as financial or legal advice. This article is for informational purposes only.

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