What Is a First Home Savings Account (FHSA)?

The thought of saving for a house can seem like a daunting challenge in today’s economy, but a first home savings account (FHSA) may be able to help you save one. An FHSA is designed to help prospective first-time home buyers save money for their first home, tax-free and up to a specific limit.

An FHSA is not the only option for saving. You may benefit from a different registered savings plan if you’re saving for more than a home. You should discuss your goals with a financial advisor experienced in growing wealth and helping clients plan for retirement through savings and investments.

What Is a First Home Savings Account (FHSA)?

An FHSA is a registered savings plan designed to help you save for your first home tax-free. It’s primarily aimed at first-time homebuyers, allowing them to save up to $40,000 towards their first home purchase. The main benefit of this account is that it allows you to grow your savings tax-free, which can significantly speed up the process of saving for a down payment.

This is a relatively new plan, having only begun April 1, 2023, and was introduced to support Canadians in home ownership. If you’re dreaming about buying your first home, opening an FHSA could be a significant step towards making that dream a reality.

Plenty of information is available online, but discussing your savings plan options with an experienced professional can be a huge benefit. A financial consultant can review your options and may recommend various beneficial savings solutions.

Opening & Closing an FHSA

Because FHSAs are registered with the federal government, some stipulations exist around them.

Opening an FHSA

To open an FHSA, you need to meet some criteria:

• You must be a Canadian resident.
• You must be at least 18 years or older.
• You cannot have owned real property, such as a condo or house, in the current calendar year before the account is opened.

Once you’ve opened your savings account, you can contribute up to $8,000 annually up to the $40,000 lifetime limit.

Opening an FHSA is a straightforward process through an FHSA issuer, such as a bank, credit union, trust, or insurance company. However, the specifics can get complex, so speaking with a financial advisor for tailored advice is always a good idea.

Closing an FHSA

FHSAs can remain open for up to 15 years, or until the end of the year you turn 71. Any funds in the FHSA not used to buy a qualifying home by this time must be withdrawn. When withdrawing funds from an FHSA, you must be a resident of Canada at the time of withdrawal and up to the time a qualifying home is bought.

FHSA vs. TFSA

A tax-free savings account (TFSA) is a general savings tool that you can use to save for any financial goal. The annual contribution limit for a TFSA is $6,500 for 2023, but unlike the FHSA, any unused room from previous years carries forward. Your total contribution room could be significantly higher if you haven’t maxed past contributions.

Both a TFSA and FHSA allow your savings to grow tax-free, but they serve different purposes. The FHSA is specifically for homeownership, while the TFSA offers more flexibility.

FHSA vs. RRSP

A registered retirement savings plan (RRSP) is a tool that helps you save for retirement. With an RRSP, you contribute pre-tax dollars and receive a tax deduction for the amount you invest. When you withdraw funds, taxes will be applied to the amount taken out. The main goal of an RRSP is to provide a reliable income source during your retirement years, with a strong emphasis on long-term growth. 

The deadline for RRSP contributions for the 2023 tax season is February 29, 2024.

Discuss Your Savings & Investment Options with a Professional

There’s a lot of information online regarding investments, savings, and retirement planning, but it’s not all accurate or reliable. While the internet provides a wealth of knowledge, seeking guidance from experienced professionals can offer invaluable insights tailored to your financial situation. Their expertise can help you navigate the intricacies of investment strategies, maximize your returns, and ensure a secure and prosperous future. Call our team at Qopia Financial today. We’re happy to sit down with you, listen to your needs, and help you design a financial plan to move you towards owning a home, retirement, or growing wealth.