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Discussion Starter #1
Hi all,
Just a quick question. I am in the process of saving for a downpayment. I currently have about $7500. We are approaching the RRSP contribution deadline for 2009, and I am wondering, should I contribute all my savings to an RRSP money market fund, simply to get a tax break, with plans to withdraw the entire amount this summer to buy a home? What are the pros and cons? Do I get that contribution room back when I withdraw the funds, or is it simply lost? It seems like an easy way to snag an extra chunk of change for the downpayment. Also, I currently have zero dollars saved in an RRSP. I am 30 years old. How does this effect my decision, and is my situation common for a Canadian my age? Any advice would be greatly appreciated....Thanks!
 

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I would.

You don't get the contribution room back, but what you do get is the right (or obligation, whatever way you want to look at it) to put the money you withdrew, back into the RRSP. When this happens, you don't get to deduct it again, but at least you don't lose the contribution room.
 

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Discussion Starter #4
Well, I think you have 15 years to put the money back, and every year you have to make a payment equal to 1/15 of the amount borrowed, or else you are taxed on that amount. As far as contribution room, to clarify, if I put 7500 in my RRSP, my available contribution room decreases by that amount. So I am wondering when I pay back the 7500, does that decrease my contribution by a further 7500 (for a total of $15000)? Or does the system realize that I am simply paying my HBP withdrawl, thereby not affecting my remaining contribution room? My main concern is, however, identifying any cons to contributing to my RRSP simply to get a tax break and partake in the HBP....thanks for any input.
 

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Well, I think you have 15 years to put the money back, and every year you have to make a payment equal to 1/15 of the amount borrowed, or else you are taxed on that amount.
This is correct.

As far as contribution room, to clarify, if I put 7500 in my RRSP, my available contribution room decreases by that amount. So I am wondering when I pay back the 7500, does that decrease my contribution by a further 7500 (for a total of $15000)? Or does the system realize that I am simply paying my HBP withdrawl, thereby not affecting my remaining contribution room? .
You only lose the contribution space once - with the initial contribution. There is an area on your tax return where you differentiate between making a regular (tax deductible) contribution and a HBP repayment.

My main concern is, however, identifying any cons to contributing to my RRSP simply to get a tax break and partake in the HBP....thanks for any input.
The cons would be the opportunity cost of losing the growth on the RRSP money while it is tied up in your house. This could also be a benefit though if the house you purchase increases in value more than the RRSP would have.

Another con is that the payment is taxable if fail to make it in a given year.

Back in the day, this was a common strategy for first-time homebuyers to implement. They would use the tax refund that they received from the contribution to cover closing and moving costs.

The rule use to be that the funds had to sit in the RRSP for 90 days before the HBP withdrawal or you would be taxed on the full amount. If that rule still applies, time your transactions accordingly.
 

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This is correct.
......

The rule use to be that the funds had to sit in the RRSP for 90 days before the HBP withdrawal or you would be taxed on the full amount. If that rule still applies, time your transactions accordingly.
The rule still applies.

Make sure it is there for at least 90 days before taking it out.
 

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I did it for several reasons

1) To avoid CMHC or whatever insurance
2) To get the tax money back now while I'm in a high tax province
3) Because I'd rather have a start on my mortgage than risky investments
4) I'm young and don't need all that money in RRSP now
5) I plan to move and may need the money to avoid CMHC again

My friend listened to his financial advisor and put it all in mutual funds

Depends on the markets of course, but in this case I think I made the better decision

I'm paying it back faster than planned, now that I have a certain chunk of the mortgage paid I'm more comfortable to start investing
 

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As someone who just recently withdrew $25K under the HBP, I can say that this thread has offered some very good points and I don't really need to add to it.

I'll just mention that you don't have to start paying it back until 2 years after the withdrawel. Though my hope is that my contributions over the next couple of years can be put against repayment of the HBP.
 

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When I used it (in 2007), the limit was $20k. We withdrew $20k from each of our accounts (my wife's and mine). It made a world of difference, and allowed us to meet our 25% downpayment target.

For various reasons already mentioned in this thread, I'd recommend doing it in a heartbeat.


K.
 

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I would recommend it too, though if you're a public service employee like me, you might find it a little harder to contribute up to the max of $25000 because of the pension cap.

If you're planning to work as a public service employee until you retire, then I would probably go the route of contributing to the RRSP until you reach the $25,000 and then pay it back over the 15 years and not contribute too much. Cus otherwise when you're retired you'll be getting dinged big time taxes, less money for you to go to your Carribean cruise. :cool:
 
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