Tag Archives: RRSP

Your Free Playbook to Retirement Income Planning

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

There’s a lot to think about when it comes to achieving your retirement goals.

I know. 🙂

I think about it a lot. I write about it a lot.

Better still, I’m planning for our retirement income needs just around the corner.

As we all know by now, personal finance is forever personal.

You need to develop a strategy and retirement income plan that works for you. Nobody else will do.

Read on to learn about the key steps I’m taking and what key steps might apply to you as well. I hope you enjoy this free playbook to retirement income planning.

No course fee required. 🙂

Your Free Playbook to Retirement Income Planning

“Drawing down one’s savings in retirement is something very few retirees do well, even with the help of professional advisors.” – Fred Vettese, Retirement Income for Life.

A general retirement preparation rule suggests that retirement income should be about 70%-80% of your annual earnings.

Well, rules are made to be broken.

In some cases, these expert rules of thumb won’t apply to you at all!

Forecasting your future financial needs can be complicated – a puzzle that needs to be deconstructed and put back together.

That said, I believe there are two-major steps involved in retirement income planning and then a third for good measure:

Step 1: What are your spending goals?

Step 2: What are your investment savings and income sources to meet those needs?

Beyond that, you’ll want to consider a third step in my opinion:

Step 3: What is the bare minimum lifestyle that you’re ready to live?

With those key questions/steps to answer, here are our answers to these key steps I’m working through as part of my retirement income planning this year, for next year in 2025.

Step 1: What are our spending goals?

Step 1 is always first.

Some Canadians can live off a little.

Some Canadians want to live off a lot.

Your income needs and wants in semi-retirement or full retirement or whatever you want to call the next phase of your life will forever be personal and up to you.

A past headline that got a lot of retirement planning attention was this BMO study and its findings.

“BMO’s 13th annual Retirement Study reveals Canadians are prioritizing retirement savings as both contributions and account holdings have increased from the previous year. The study found that Canadians believe they will need $1.7 million to retire, up 20 per cent from 2020 ($1.4 million). However, fewer than half (44 per cent) of Canadians are confident they will have enough money to retire as planned, a 10 per cent decrease from 2020.”

Do you need $1.7 million to retire?

You might.

It is my conclusion most won’t need that much.

Here are the questions we’ve answered on this subject, to figure out what we need and want related to our spending goals:

  • How much do we wish to spend, annually, on average in retirement and starting when?
  • Do we see us working part-time or not at all?
  • Do we wish to have any “go-go” spending years/higher spending years in early retirement years vs. later retirement years?
  • How might inflation or other factors impact our savings?
  • Do we have any capital expenses in retirement – like newer cars every 10 years?
  • Do we care to leave any estate? If so, how much?
  • Are we prepared to change our lifestyle if needed?

I’ll link to all our answers to these questions later in today’s post with some articles for reference. 🙂

Step 2: What are our retirement income sources to meet those needs?

Just like planning a trip, once you figure out where you want to go you’ll need to figure out how to get there: what components are part of your trip.

As a starter for our retirement income planning considerations, I looked at these components: Canada’s retirement income pillars and what income might be available from each pillar and when:

  • Pillar 1 is the Old Age Security (OAS) pension and its companion program, Guaranteed Income Supplement (GIS) – age 65. 
  • Pillar 2 is the Canada Pension Plan (CPP) – starting age 65 or ideally later. 
  • Pillar 3 includes your mix of tax-assisted vehicles such as Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs) and other accounts – starting in our 50s. 
  • Pillar 4 includes other assets accumulated over your lifetime such as your primary residence, vacation property (if you are lucky to have one), or stocks held with your brokerage firm in a taxable account – starting in our 50s. 

In Step 2, we basically listed all our available income sources and the potential timing of those income sources along with other considerations you might wish to review as well:

  • Maximize your Registered Retirement Savings Plan (RRSP). If you have unused RRSP contribution room from previous years, take advantage of the ability to “catch up” your contributions.
  • Eliminate debt. I believe servicing debt eats into your available income when you’re retired – we won’t have this problem since we intend to enter semi-retirement remaining debt-free.
  • Consolidate your investments. Consolidating your assets under one financial roof should make it easier to manage and diversify your portfolio and it could reduce your overall investment costs too.
  • Make your portfolio as tax-efficient as possible. Are you paying more to the government than you have to? Different types of income are taxed in different ways. Too much interest income, which is fully taxable in a taxable accont should be avoided beyond an emergency fund while capital gains and Canadian dividends receive preferential tax treatment when held in a taxable account. You should also strongly consider maxing out your TFSA with equities as well = tax-free growth. 🙂
  • Company pension(s). We have been fortunate enough to have x1 defined contribution (DC) and x1 defined benefit (DB) pension plan in our household – so we use those account values and income estimates in our retirement income planning at certain ages. For us, the DC will come online at age 55. The DB is likely to come online at age 65.
  • Inheritance/family estate. Is that in your financial future at all? “Bonus money” if so?
  • Part-time or hobby work. We have also considered the option to work part-time here and there not only for hobby income for travel but also to keep your minds busy and remain socially active too.

You might want to consider creating a retirement income map that breaks down your income sources every 5-years or so. Here is mine:

Our Retirement Income Map - March 2024

I’ll highlight our three (3) key early retirement income sources later in the post as well.

Step 3: What is our bare mininum lifestyle – could we scale back?

Through basic budgeting, I know our base – what our day-to-day living costs are with some buffer built-in.

Using this information, I know what we need to earn at age 65 to enjoy retirement with.

Our retirement income plan has that covered with a few income sources listed above including government benefits such as CPP and OAS in our future at age 65.

My problem and opportunity is, I don’t want to wait that long until age 65. 🙂

Maybe the same applies to you.

Life is short. Time is precious. Work on your own terms is better than needing to work.

I’ve recently heard from one blogger that it’s quite easy to spend less in retirement – just assume you will. You will take off-peak vacations as an example. I think that’s flawed thinking. You don’t always want to spend less in retirement. There could be bucket-like trips or other purchases you’ve waited your entire life to take.

A good solution is to figure out your Coast FIRE number.

With Coast FIRE:

  1. While you expect your retirement assets to grow as you reach a final retirement date, the good news is,
  2. Based on the assets you have, you don’t really need to save any more money for retirement = you are financially coasting to your retirement date. This is because existing income (full-time, part-time, hobby income, occasional work) or whatever work that is covers your key expenses until you reach your final retirement date.

Another option is Barista FIRE.

I would advise just like looking at your spending goals related to what you want to spend, you should also look at your bare bones budget and determine what you must spend. That’s your floor. That’s your starting point. Coast FIRE or Barista FIRE could be add-on solutions.

I’ve linked to this fun Coast FIRE calculator here and I’ve also listed this calculator amongst other FREE stuff on my Helpful Sites page.

Your Free Playbook to Retirement Income Planning

Before my answers I promised above here are a few other factors to consider:

  1. Time – Do you have a lot of time to save for retirement? i.e., are you saving later in life?
  2. Diversification and risk and liquidity – As good as any one stock performs in my portfolio, some are up over 40% this year (!!) it’s probably never a good idea to put all your retirement eggs in the same basket. What goes up could go down…  I’ve always believed that any near-term spending within the next 1-2 years should likely be in safe cash or cash equivalents and not equities. Again, your mileage may vary.
  3. Inflation – To help ensure that your spending power is retained, you need to factor in the rising costs of goods and services. Ensure you include higher spending / inflation factors as you age. I’ll tell you mine below.

Our Playbook to Retirement Income Planning

Inspired by readers that wanted to know more, here are our answers to the questions above:

1. How much do we wish to spend, annually, on average in retirement?

Our desired spending for our first year of semi-retirement is in the range of $70,000 – $75,000 per year (that means after-tax).

As part of our retirement income assumptions we use the following that might be helpful to you as well:

  • 5% annualized rate of return i.e., over the coming decades from RRSPs/RRIFs, TFSAs and Non-Registered Accounts. Historically, we’ve earned much more than that but I like to be cautious.
  • 3% sustained inflation. I personally wouldn’t go any lower than 2.5%.

2. Do we see us working part-time or not at all?

Yes, part-time for sure.

I have personally anticipated I will continue working at something here and there after full-time work is done but the need to work however to meet our desired spending is now optional and therefore no longer required as of this year. Continue Reading…

An interesting RRSP idea: all-in on QQQ?

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Image courtesy Tawcan/Unsplash

By Bob Lai, Tawcan

Special to Financial Independence Hub

As an engineer by education & training and an analytical person, it shouldn’t come as a surprise to readers that I ponder a lot. I like to think about something carefully before deciding or reaching a conclusion. Although this approach may not work in all situations, I enjoy being analytical on major life decisions.

The other day I woke up with this interesting idea in my head. The idea simply wouldn’t escape from my head and I ended up thinking about it for the entire day.

The interesting idea is simple: Should we go all in on QQQ with our RRSPs?

Since this is an interesting idea, I thought I’d turn it into a blog post, analyze the idea thoroughly, and hopefully come to a conclusion.

Things to consider 

A few things before we dive into the analysis.

An RRSP is a tax-deferred account. When you contribute to one, you get a tax deduction for 100% of your contributions. If you contribute $10,000 to your RRSP, it will reduce your net income by $10,000, and potentially bring you down to the lower tax bracket.

When you withdraw money from your RRSP, you will be subject to withholding tax. The amount of withholding tax is based on how much you take out.

RRSP withholding tax
The net amount after the RRSP withholding tax is then taxed at your marginal tax rate.

You also must convert an RRSP to a retirement income option such as a RRIF by the end of the year that you turn 71. Although there are no mandatory withdrawal requirements in the year you set up your RRIF, you must start withdrawing money the year after setting up your RRIF (effectively at age 72). Furthermore, there’s a minimum withdrawal rate for RRIF. The withdrawal rate increases as you age.

Note: You can convert your RRSP before age 71. If you do, there’s a minimum withdrawal rate starting at age 55.

Just like the RRSP, money withdrawn from an RRIF is taxed like working income, or at 100% of your marginal tax rate.

In other words, it doesn’t matter whether the money is from capital gains or dividend income, money withdrawn from an RRSP and an RRIF is taxed at 100% of your marginal tax rate. You don’t get any preferential dividend tax treatment like in non-registered accounts.

When we do start living off our investments (aka live off dividends), our withdrawal strategy is very similar to Mark from My Own Advisor – NRT. This means drawing down some non-registered (N) assets along with registered assets (R), leaving TFSAs (T) for as long as possible.

More details:
  • N – Non-registered accounts – we most likely will work part-time to keep ourselves engaged and live off dividends to some degree from our non-registered accounts. The preferential dividend tax credits will come in handy.
  • R – Registered accounts (RRSPs) – we plan to make some early withdrawals from our RRSPs slowly. We may collapse our RRSPs entirely before age 71. We may also convert our RRSPs to RRIFs. This is not entirely decided (if we do convert to RRIFs, we want to make sure the dollar amount is relatively small). Early withdrawals will help us from having a large amount of money in our RRSPs and having a big tax hit when we start withdrawing. In other words, this will help smooth out our taxes.
  • T – TFSAs – since any withdrawals from TFSAs are tax-free, we intend not to touch our TFSAs for as long as possible so they can compound over time.

Mark, along with Joe (former owner of Million Dollar Journey), ran an analysis for us many years ago via their Casflows and Portfolios Retirement Projections to reinforce this withdrawal plan.

Note: if you’re interested in this retirement projections service, mention TAWCAN10 to Mark and Joe to get a 10% discount.

We may also do an RNT (Registered, Non-Registered, then TFSA) withdrawal strategy but will need to crunch some numbers. Whether it’s NRT or RNT, the important part is that we plan to slowly withdraw money from our RRSPs.

Current RRSP Holdings

Although RRSPs are best for holding U.S. dividend stocks to avoid the 15% withholding tax, we hold U.S. and Canadian dividend stocks and ETFs inside our RRSPs.

At the time of writing, we hold the following stocks and ETFs inside our RRSPs:

  • Apple (AAPL)
  • AbbVie (ABBV)
  • Amazon (AMZN)
  • Brookfield Renewable Corp (BEPC.TO)
  • BlackRock (BLK)
  • Bank of Nova Scotia (BNS.TO)
  • CIBC (CM.TO)
  • Costco (COST)
  • Emera (EMA.TO)
  • Enbridge (ENB.TO)
  • Alphabet Inc. (GOOGL)
  • Hydro One (H.TO)
  • Johnson & Johnson (JNJ)
  • Coca-Cola (KO)
  • McDonald’s (MCD)
  • Pepsi Co (PEP)
  • Procter & Gamble (PG)
  • Qualcomm (QCOM)
  • Invesco QQQ (QQQ)
  • Royal Bank (RY.TO)
  • Starbucks (SBUX)
  • Telus (T.TO)
  • Tesla (TSLA)
  • TD (TD.TO)
  • Target (TGT)
  • TC Energy Corp (TRP.TO)
  • Visa (V)
  • Waste Management (WM)
  • Walmart (WMT)
  • iShares ex-Canada international ETF (XAW.TO)
Our RRSPs consist of 18 U.S. dividend stocks, 10 Canadian dividend stocks, and 2 index ETFs.

In terms of dollar value, my RRSP makes up about 70% while Mrs. T’s RRSP (spousal RRSP) makes up about 30%. Ideally, it would be great if our RRSP breakdown were 50-50 (I’m ignoring my work’s RRSP so in reality the composition is more like a 25-75 split).

Because we started Mrs. T’s RRSP a few years later than mine it hasn’t had as much time to compound. Furthermore, I converted over $120,000 worth of CAD to USD in my RRSP when CAD was above parity. Over time, this gave my self-directed RRSP an automatic 30% performance boost.

In addition, because the exchange rate hasn’t been as attractive, the only U.S. holdings Mrs. T has are Apple and QQQ. The rest of her RRSPs are all in Canadian dividend stocks.

We purchased QQQ earlier this year inside Mrs. T’s RRSP. Dollar-wise, it makes up a very small percentage of our combined RRSPs.

Some info on QQQ

For those readers who aren’t familiar with QQQ, it’s an ETF from Invesco. Since launching in 1999, the ETF has demonstrated a history of outperformance compared to the S&P 500.

QQQ vs S&P 500

The top 11 – 20 holdings for QQQ are AMD, Netflix, PepsiCo, Adobe, Linde, Cisco, Qualcomm, T-Mobile US, Intuit, and Applied Materials. These holdings make up 15.71% of QQQ.

Due to the nature of the Nasdaq 100 Index, QQQ is heavily exposed to technology and consumer discretionary sectors.

QQQ sector allocation
As you can see from below, it also outperformed XAW and VFV significantly. This is the key attraction of QQQ, as the fund has historically outperformed many major indices.
QQQ vs XAW vs VFV performance
Source: Portfolio Visualizer

As you can see from above, $10,000 invested in QQQ in 2016 would result in over $42,000 in 2024 whereas the same amount invested in XAW and VFV would result in less than $30,000.

Case for going all-in on QQQ

Why would we consider going all in on QQQ?

Because QQQ has done very well historically compared to the major U.S. and Canadian indices.

Per the chart above, QQQ had an annualized return of 19.09% since 2016. In the last 20 years, QQQ has had an annualized return of 14.03% and an annualized return of 18.12% in the last 10 years.

Assuming we invest $150,000 in QQQ and enjoy an annualized return of 15% for the next 10 years, we’d end up with $606,833.66, assuming no additional contributions. On the flip side, if we have the same money and have an annualized return of 10% (long-term stock return), we’d end up with $389,061.37. This means investing in QQQ would result in more than $217.7k of difference in return on capital or 56%. This is a pretty significant difference.

Yes, historical returns don’t guarantee future returns. However, the high exposure to technology stocks should allow QQQ to continue the superior return for years to come.

Due to the fact that RRSP and RRIF withdrawals are taxed 100% at our marginal tax rate, it makes sense to attempt to maximize the total return inside of RRSPs/RRIFs instead of a mix of dividend income and capital return.

Case against going all in on QQQ

The biggest case against going all in on QQQ? Our dividend income would take a big hit.

Our RRSPs contribute about 30% of our annual dividend income. With our 2024 target of $55,000, selling everything in our RRSPs and holding QQQ only would reduce our total dividend income to about $38,500 (ignoring QQQ distributions completely).

But focusing on dividend income alone is a bit silly when we should be considering total return and the total portfolio value.

Out of the 18 U.S. stocks that we hold in our RRPS, QQQ holds 9 of them already. The stocks that QQQ doesn’t hold are:

  • Abby
  • Johnson & Johnson
  • Coca-Cola
  • McDonald’s
  • Procter & Gamble
  • Target
  • Visa
  • Waste Management
  • Walmart

These 9 stocks make up about 25% of our RRSP in terms of dollar value. Since we purchased these stocks many years ago, they have all done very well, with a few of them being multi-baggers. I would hate to sell the likes of Visa and Waste Management.

Investing in QQQ does mean that when we start to live off our investment portfolio, rather than withdrawing mostly from dividends inside our RRSPs in the first few years (to increase our margin of safety), we’d need to sell QQQ shares and touch our principal.

If there are a few years of poor returns at the beginning of our retirement, this could cause a significant reduction in our portfolio value. Essentially, selling shares may not have as much margin of safety compared to relying on withdrawing dividends only.

Another case against going all in on QQQ is that QQQ is currently highly concentrated in technology stocks so it’s not all that diversified compared to other index ETFs like XAW. The latest AI hype has significantly bumped up the share price of many technology stocks. Would we see a Dot Com type of bubble in the future and hamper the return of QQQ? That’s certainly possible.

QQQ historical return
QQQ historical return

As you can see from the chart above, QQQ didn’t recover from the Dot Com bubble for about 14 years. This is a risk we would take on if we were to go all in on QQQ.

Potential Alternatives to going all-in on QQQ

Instead of going all in on QQQ, there are some potential alternatives.

First, we can simply add more QQQ shares in the next few years to have QQQ make up a larger percentage of our dividend portfolio. This is already our plan of record but we stay focused on this goal instead of purchasing more dividend paying stocks in our RRSPs.

Second, since we hold QQQ inside of Mrs. T’s RRSP and she holds mostly Canadian dividend stocks in her RRSP, we can consider closing out these positions and using the money to buy QQQ shares.

If we were to do that, we’d only lose about 12% of our forward annual dividend income, going from $55,000 to $48,400. Assuming QQQ continues the superior performance over other indices, holding only QQQ and Apple in Mrs. T’s RRSP and continuing to contribute to her RRSP only may mean that we have a higher chance of ending up with a 50-50 RRSP split down the road.

Some additional logistics to consider

The second option mentioned above is quite intriguing. But there are some logistics to consider if we were to forward with this option.

Second, we’d need to convert CAD to USD and take a hit on the exchange rate. Utilizing Norbert’s Gambit would allow us to save on the additional current exchange fees. The alternative solution would be to journal as many of the holdings to the U.S. exchange, close the positions, and end up with USD.

Another option is to consider the Canadian equivalents, like XQQ, ZQQ, HXQ, or ZNQ to avoid currency conversion. As many of you know, I’m all for simplicity and straightforwardness, so it makes sense to hold the original ETF QQQ instead of other alternatives.

Conclusion – Should we go all in on QQQ? 

So, have I reached a decision after all the considerations?

I’ll admit, the second option mentioned (holding only QQQ in Mrs. T’s RRSP) is very intriguing to me. But I am going to sleep on it for a bit and discuss the idea with Mrs. T before making any major decisions. In the meantime, we will continue to add more QQQ shares in Mrs. T’s RRSP so QQQ makes up a bigger percentage of our dividend portfolio.

Readers, what would you do? Would you go all in on QQQ?

Hi there, I’m Bob from Vancouver, Canada. My wife & I started dividend investing in 2011 with the dream of living off dividends in our 40’s. Today our portfolio generates over $2,700 in dividends per month. This post originally appeared on Tawcan on July 15, 2024 and is republished on the Hub with the permission of Bob Lai.

Big tax tips for small business owners

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Image by Pexels: N. Voitkevich

By Aurèle Courcelles, CFP, CPA

Special to Financial Independence Hub

Small businesses play a sizeable role in shaping Canada’s economy, contributing significantly to national employment numbers and our country’s gross domestic product (GDP).

According to Statistics Canada, in 2022 businesses with 1 to 99 employees made up 98 per cent of all employer businesses in this country. But today’s economic environment has triggered new financial challenges for this cohort. Canadian entrepreneurs can help offset the cost of rising inflation, rising cost of inputs, and rising interest rates, and keep more money in their pockets, by adopting some or all of these key tax strategies.

Consider employing your immediate family

Income splitting, whereby the higher-earner transfers part of their income to a lower-earning family member, can reduce the tax owed by your household. Consider paying a reasonable salary to your spouse and/or children for the services they provide for your business to reduce your tax obligations.

Incorporate your business

If your business generates more profit than you need to live on, incorporation is a highly effective tax strategy. It could lead to a significant tax deferral by qualifying for the lower small business tax rate for active income – the longer the profits are left in the company, the larger the tax deferral. If shares of the business are ultimately sold and are eligible for the lifetime capital gains exemption, the tax deferral gained through incorporation can create a permanent tax saving.

Other potential advantages of incorporation include having family members own shares (so as to have access to multiple capital gains exemptions) and possibly paying out dividends to actively participating family members who are taxed at a lower rate.

Maximize tax breaks with registered plans

Consider your RRSP contribution room when setting and reporting remuneration for services provided by yourself and family members who also work in the business. Employment income creates RRSP contribution room for the following year which, for 2024, can represent up to $31,560 of room. RRSP contributions are tax deductible, provide tax deferral and allow for business owners to diversify their future retirement income.  Contributing to a tax-free savings account (TFSA) can also work in your favor by allowing you to withdraw funds if needed without penalty. Continue Reading…

New tax-free Questrade FHSA helps Canadians save, invest & realize their dream of homeownership

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Image courtesy Questrade/iStock

By Rob Shields, Questrade 

Special to Financial Independence Hub

On April 1, 2023, Questrade became the first in Canada to offer the new First Home Savings Account (FHSA). For us, this was a major accomplishment in our continued mission to help Canadians on their journey to financial independence. Our goal has always been to challenge the status quo, transforming financial, investing and mortgage services for the good of Canadians. Knowing the Government of Canada was introducing the new FHSA on April 1, the team at Questrade began planning months ago. Our goal was to offer Canadians this account on day one, so they can start saving, investing and growing their money for their first home. Mission accomplished.

Save for a home faster

Saving for a home is a big challenge for many Canadians. With housing prices as they are — especially in major cities — maximizing your down payment is critical. By opening an FHSA account at Questrade, Canadians can invest up to $8,000 annually, deduct their investment contributions from their taxable income and give it the opportunity to grow in the market. They can contribute up to $40,000 in this account, with no limits to how much it can grow, making it a powerful savings tool. Ultimately, they can withdraw it tax-free to use it for a home purchase: with no requirement to repay. The only requirements to open an FHSA are: being a verified resident of Canada, being at least 18 years of age, and being a first-time home buyer.

Imagine a scenario where you open an FHSA account with a goal to buy a house in 10 years. If you maximize your annual contribution limit of $8,000 per year for the first 5 years, you’ll reach the lifetime contribution limit of $40,000 in 5 years. If you invest your account with a Questwealth Aggressive Growth Portfolio, which had an average return of 7.18% per year, your account could grow to $69,993 after 10 years*. That’s $69,993 you can withdraw tax-free to put towards your home, with $29,993 coming just from investment gains. Continue Reading…

More on the FHSA [Tax-free First Home Savings Account]

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The FHSA and reasons why younger Canadians should really opt in to opening this account with any intention to buy their first home over time …

By Mark Seed, myownadvisor
Special to Financial Independence Hub

The New Tax-Free First Home Savings Account (FHSA) Facts:

  • Think of the FHSA as a hybrid of the Registered Retirement Savings Plan (RRSP) / Home Buyers’ Plan and Tax-Free Savings Account (TFSA): FHSA contributions are tax-deductible like the RRSP and qualifying withdrawals out of the account are not taxed just like the TFSA.
  • To be eligible to open and contribute to your FHSA you must be:
    • A Canadian resident + 18 years or older + *a first-time home buyer. (Meaning, existing homeowners AND folks that owned a home in the *last four preceding years of trying to open the FHSA won’t qualify to open this account).

*An individual is considered to be a first-time home buyer if at any time in the part of the calendar year before the account is opened or at any time in the preceding four years they did not live in a qualifying home (or what would be a qualifying home if located in Canada) that either (i) they owned or (ii) their spouse or common-law partner owned (if they have a spouse or common-law partner at the time the account is opened).

  • The FHSA can hold stocks and bonds and ETFs just like the TFSA and RRSP.

FHSA Contributions and Tax Deductions:

  1. Individuals would be able to claim an income tax deduction for FHSA contributions made in a particular taxation year; contributions currently capped at $8,000 per year up to a $40,000 lifetime contribution limit. So, a solid 5-years of striving to max-out the account for tax-free withdrawals.
  2. Like the TFSA, your unused FHSA contribution room can be carried forward to the following year but only up to a maximum of $8,000.

FHSA Holding Period and Withdrawals:

The account can stay open for 15 years OR until the end of the year you turn 71 (not very likely???) OR until the end of the year following the year in which you make a qualifying withdrawal from an FHSA for the first home purchase, whichever comes first.

FHSA worst-case? What if you open an account and you don’t purchase a home??

Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis, subject to applicable rules. Of course, funds transferred to an RRSP or RRIF will be taxed upon withdrawal.

All that and more, is highlighted in this comparison graphic below via @AaronHectorCFP and more details from Cut The Crap Investing with even more Q&A.

Weekend Reading - The New Tax-Free First Home Savings Account (FHSA)

Reference/Source: https://cutthecrapinvesting.com/2023/03/01/the-tax-free-first-home-savings-account-in-canada-fhsa/

My FHSA Thesis

Overall, pretty great stuff with the FHSA and a major opportunity for younger investors who are really trying to find ways to sock away more money for their very first home.

Continue Reading…