How RRSP and the Home Buyers Plan can help First Time Home Buyers. Here is article written by two professionals with industry experience in Financial Advising (Henry Foradori a Senior Financial Advisor) ; and Mortgage Brokering (Rumy Gill a Brampton Mortgage Broker) to help give insight to First Time Home Buyers on the importance of RSSP and the Home Buyers Plan.
RRSP and the Home Buyers Plan:
For most Canadians their two most important financial goals are; as a First Time Home Buyer, is to own a home and as a home owner, to be able to retire comfortably. For most home owners, they have built a nest egg through home ownership and used retirement plans to attain a retirement lifestyle of comfort and leisure. So how can a RRSP help you reach these two goals, as a First Time Home Buyer, own a home and then later help you retire comfortably?
The key is to work with a great Senior Financial Advisor and Mortgage Broker who can help you achieve these goals of Home Ownership and then later retire comfortably.
But let’s dive into the details, and learn about how a Senior Financial Advisor and a Mortgage Broker can help make sense of a RRSP.
What is a RRSP or Registered Retirement Savings Plan? It is a Federal Government sponsored program that allows individuals to save for their retirement. The earliest one can contribute requires a social insurance number and a filed tax return. As the name implies it is meant to help one save for their retirement and while that may be decades away, the government will allow individuals to deduct contributions for their income resulting in reduction in the amount of tax payable. Contributions are based upon the lower of:
- 18% of earned income from the previous year or
- A maximum annual contribution limit, 2019 limit $26,500
- If you belong to a pension plan there is what is referred to as a pension adjustment (PA), which will lower your contribution limit.
If you are not aware of how RSSP works or want get the best strategy for investing, then you can rely on a Senior Financial Advisor to help you explore the several investments that are eligible to be held within an RRSP such as stocks, bonds, mutual funds, T Bills, ETFs Exchange Traded Funds and GICs.
If you happen to miss or do not maximize your contribution you can carry forward any used RRSP contributions. However, be careful if you over contribute as you are only allowed a lifetime over contribution of $2000. Any excess will result in a penalty of 1% per month, make sure to contact a Senior Financial Advisor if you are unsure utilizing the maximum contribution.
Contributions can be made during the calendar year and up to 60 days after the previous year, which can be applied to your previous year tax return.
There are plenty of planning opportunities when working with a Senior Financial Advisor. For instance, if one spouse works or earns much more than the other, you can contribute in the spouse’s name and the contributor, the higher earning spouse, gets the deduction. Effectively you build two retirement plans. Over the long term you can accumulate a sizable nest egg which meets your needs towards a comfortable retirement.
For First Time Home Buyers, the Home Buyers Plan is one of the best planning opportunities to achieve your goals of Home Ownership and retire comfortably. The Home Buyer Plan, allows individuals to withdrawal up to $35,000 each from their RRSP towards a Down Payment on a home. This can be a huge advantage for First Time Home Buyers, providing a maximum Down Payment of $70,000 towards buying your first home. What this means is a larger Down Payment and smaller mortgage payments when purchasing your first home. Be aware that you will need to pay back the withdrawal from you RRSP over a 15 year period. However, always make sure you consult with a Mortgage Broker to know your borrowing capacity and that you are receiving all the benefits available to First Time Home Buyers
It is import to note that an RRSP is a tool that can meet not only your long term retirement needs; it can also be a means to save for your new home, fulfilling your two most important financial goals; Home Ownership and then later being able to retire comfortably.
If you have any Questions or would like explore your options around RRSP and the Home Buyers Plan, make sure to get in touch with us today.
Rumy Gill – Mortgage Broker
Office : 2260 Bovaird Dr. E. Unit 202A
Brampton, ON L6R 3J5
Mortgage Intelligence Inc. – Lic# 10428