First home savings accounts (FHSAs) may be able to help investors reach their goal of owning a home sooner.
An FHSA is a registered account designed to help Canadians save for their first home purchase. Registered accounts receive favorable tax treatment from the Canada Revenue Agency (CRA). These accounts aim to help investors meet particular savings goals.
See more: The Investor’s Guide to Registered and Non-Registered Accounts
FHSAs allow first-time homebuyers to contribute up to $8,000 annually, up to a $40,000 lifetime limit, to save for a home in Canada. Contributions to an FHSA are tax deductible, and withdrawals are tax-free when used for this purpose.
Investors can also transfer funds to an FHSA from their registered retirement savings plan (RRSP). However, it’s important to note that transfers from an RRSP to an FHSA will not be tax deductible. Also, they will not reset the RRSP contribution limit.
Investors can hold various investments in an FHSA, including stocks, bonds, ETFs, mutual funds, options, and GICs. Due to the special tax treatment, money in registered accounts can potentially compound faster than it would in a nonregistered account. Any investment gains within an FHSA grow tax-free.
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Investors can hold an FHSA for up to 15 years from the date they open the account. If they do not use the FHSA to purchase a home, their investments can transfer to an RRSP or a registered retirement income fund (RRIF). A direct transfer out of a FHSA to a RRSP or RRIF will not have any immediate tax consequences as long as there is not an excess FHSA amount.
To be eligible to open an FHSA, the account holder must be a Canadian resident who has reached the age of majority in their province or territory. Additionally, FHSAs are only available to those who meet the account eligibility criteria of a first-time homebuyer.
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