Buying a first home can be very stressful. Most of us will need to find as much money as we can to make a good down payment. A common source of down payments in Canada is withdrawals from personal Registered Retirement Savings Plans under a program called the Home Buyers Plan. It’s not always clear exactly how much you can withdraw. Here are the rules.
No RRSP, No Luck
If you don’t have any money in your RRSP, you can’t get any money out of it when you purchase your home.
Small RRSP, Small Down Payment
If you do have money in your RRSP and you have less than or exactly $25,000, and it’s been there for at least 3 months (90 days) before you want to use it to buy your home, you can take the whole amount out.
Whopping RRSP, Modest Down Payment
If you have more than $25,000 in your RRSP, and it’s been there for at least 3 months (90 days) before you want to use it to buy your home, you can only take out $25,000. Any additional withdrawals from your RRSP will be added to your income for the year and taxed at a your highest tax rate. You won’t be able to re-contribute those withdrawals above $25,000 in later years, either. And you will have to pay some of the income tax owing on the money before you can withdraw it not just by April 30.
Buying a First Home with a Spouse
Your spouse can also make a withdrawal following the same rules. So the most you two could withdraw as a combined total is $50,000.
You Can’t Share RRSP Room with a Spouse
If you have, say $30,000 in your RRSP and your spouse has $20,000 in his RRSP, the most that can be withdrawn is $55,000. You can’t withdraw more than $25,000 even if your partner is short of the maximum.
I Have 3 RRSPs. Can I Withdraw from All of Them?
Sometimes people have RRSPs at several financial institutions. They may have GICs at a trust company, Streetwise Funds at ING Direct, and stocks in a self-directed brokerage account.
You can withdraw your investments from any of your RRSP accounts. The total withdrawal is limited to $25,000 though and it must have been contributed more than 3 months (90 days) before the withdrawal.
Can the Bank Charge Me to Withdraw from my RRSP for the HBP?
No tax has to be withheld on withdrawals from a RRSP for the Home Buyer’s Plan. However, a bank or financial institution can still charge you a fee to take out the money. Fees of $100 are not unusual.
If you are getting a mortgage from the bank that holds your RRSPs you may be able to ask to get the fee waived. They should want your mortgage business badly enough to give up the $100 or so fee.
Can I Withdraw Funds from a LIRA or a Group RRSP?
Usually you can NOT withdraw funds from
- a locked-in retirement account (this is the kind of account you get when you leave a job and they give you some or all of your future retirement funds as a type of RRSP)
- a group RRSP (these are usually a type of pension plan available through your job)
- Canada Revenue Agency Home Buyer’s Plan Information
- RRSP Strategies Part 1: Get Your Money Contributed In Time
Did you use the HBP to help with your down payment? Or are you hoping to? Please share your experiences with a comment.