The question that started this
A few first-time buyers asked me a smart question this past week: they knew their RRSPs qualify for the Home Buyer's Plan, but what about their TFSAs?
Short answer: TFSAs don't qualify for the Home Buyer's Plan. The two accounts are built differently, which changes how you can use them. More on that below.
As a refresher, the Home Buyer's Plan lets you pull up to $60,000 per person out of your RRSP without paying tax on it. You get 15 years to put it back.
How a TFSA works for a down payment
A TFSA is a registered plan like an RRSP, but the mechanics flip. You don't get a tax deduction when you put money in. The upside: you don't pay tax when you take it out, and that includes any investment gains you made inside the account.
For saving toward a down payment, a TFSA can actually be a better tool than the Home Buyer's Plan — especially if you're early in your career.
You don't need earned income to build TFSA room. Say you're making $40,000 this year. That creates just $7,200 in RRSP contribution room for next year. Meanwhile, your TFSA room is already $38,000 (or $76,000 if you're saving with a partner the same age).
The other thing: when your income is lower, your RRSP contributions generate a smaller tax refund. You're in a lower bracket, so the math tips in favour of the TFSA.
When the RRSP route makes sense
The Home Buyer's Plan is a great option if you've already been contributing to an RRSP for a few years and don't have savings sitting outside of it.
If you're starting from scratch and haven't put anything into an RRSP yet, it usually makes more sense to use the TFSA from day one.
What to do next
If you're not sure which account fits your situation — or you want to map out a plan that gets you to the down payment you need — reach out. We'll walk through the numbers with you.
