FHSA, RRSP, TFSA, and HBP for First-Time Buyers
How the First Home Savings Account works with RRSP/TFSA sequencing and the Home Buyers’ Plan — Canada-focused guide.
By Prosperics Editorial Board · DIGITI LLC
Prosperics is published by DIGITI LLC, a California company. Calculators and guides are written and maintained by the Prosperics editorial board. Figures are checked against primary sources — IRS, CRA, SSA, and central bank publications — and each page shows the date it was last reviewed.
Understanding the First Home Savings Account (FHSA)
The FHSA is a registered account introduced in 2023 that combines the best features of the RRSP and TFSA for first-time home buyers. Contributions are tax-deductible (reducing your taxable income) and qualifying withdrawals for a home purchase are completely tax-free.
Key takeaways
- ✓Annual contribution limit of $8,000 with $40,000 lifetime maximum
- ✓Up to $8,000 of unused room carries forward to the next year
- ✓Must be used within 15 years of opening or by age 71
- ✓Can be combined with the Home Buyers' Plan (HBP) for maximum benefit
Account Sequencing: Optimizing FHSA, RRSP & TFSA
Account sequencing means contributing to your registered accounts in the order that maximizes your after-tax wealth. The optimal order depends on your current and expected future tax rates, whether you plan to buy a home, and your investment time horizon.
Key takeaways
- ✓High earners typically benefit most from RRSP first (larger tax deduction)
- ✓Home buyers should prioritize FHSA for dual tax advantage
- ✓Lower earners may prefer TFSA to avoid locking in small deductions
- ✓Income trajectory matters — growing income favours TFSA now, RRSP later
RRSP vs TFSA: When Each Makes Sense
The core difference is timing of taxation. RRSP contributions are deducted now and taxed on withdrawal. TFSA contributions use after-tax dollars but grow and are withdrawn tax-free. If your marginal rate is higher now than in retirement, RRSP wins. If rates are similar or higher in retirement, TFSA wins.
Key takeaways
- ✓RRSP advantage = current marginal rate minus retirement marginal rate
- ✓RRSP is better when current income is significantly higher than expected retirement income
- ✓TFSA provides more flexibility — withdrawals do not affect government benefits
- ✓RRSP room is 18% of prior year earned income, up to the annual limit
Home Buyers' Plan: Combining FHSA and HBP
The Home Buyers' Plan allows you to withdraw up to $60,000 from your RRSP tax-free for a qualifying first home purchase. Unlike FHSA withdrawals, HBP withdrawals must be repaid over 15 years. Using both FHSA and HBP together can provide over $100,000 in tax-advantaged funds for your down payment.
Key takeaways
- ✓HBP maximum withdrawal is $60,000 per person ($120,000 per couple)
- ✓Repayment starts the second year after withdrawal, over 15 years
- ✓FHSA withdrawals have no repayment requirement
- ✓Both spouses can use FHSA and HBP simultaneously for the same home
Sources
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Educational content only. Not financial, legal, or tax advice.