Buying a home, going back to school, emergencies, retirement…there are lots of reasons why you might want to use money currently sitting in your RRSP. In today’s video, I’ll outline the rules around getting money out of this account to buy a home.

Now I’m not urging you to raid your RRSP for anything before retirement, but there are some rules around pulling money out of this type of account that are useful to know if you have one or plan on using one in the future.

All withdrawals from the RRSP are included in your income for tax purposes, so you’re taxed at your marginal rate. If you pull $10,000 from an RRSP, and are already earning a $50,000 income, your taxable income is then $60,000. Your marginal tax rate in Ontario is 29.65%, so you’d owe $2,965 in taxes on that withdrawal. There are two exceptions to this: The first is if you are using the RRSP to fund the down payment on your first home. The second is if you are pulling money out of your RRSP to pay for education. Today I’ll focus on the more popular plan, the Home Buyers Plan.

The Home Buyers Plan allows you to borrow money from your own RRSP to put a down payment on your first home. It’s like an interest free loan to yourself. In order to be able to participate in this plan, you must meet the eligibility conditions. These state that you must be a first time home-buyer with a written agreement to buy or build a qualifying home for yourself, OR you must have a written agreement to buy or build a qualifying home for a related person with a disability. You must also intend to occupy the home as your principal place of residence within one year after buying or building it. A first time home buyer is someone who in the previous four years did not occupy a home that you or your current spouse or common-law partner owned. I link to the CRA website that outlines these rules in more detail in the description below. It is possible that you might be a first-time home-buyer and your spouse is not.

There are a number of other conditions that have to be met to be allowed to withdraw funds from the RRSP under the Home Buyers Plan.

You have to be a resident of Canada at the time of withdrawal
You have to receive all withdrawals in the same calendar year
You cannot withdraw more than $25,000
You must be the person entitled to receive the funds from the RRSP (not your spouse)
Normally you can’t withdraw from a locked-in RRSP or a group RRSP
Your contributions must stay in the RRSP for at least 90 days before you can withdraw the funds
You have to withdraw funds within 30 days of your, your spouse or common-law partner owning the home
You have to buy or build a home before October 1st of the year after the year of withdrawal
If you make a withdrawal and the conditions are not met, the withdrawal will be included as income on your tax return.

Once you make a proper withdrawal, you have to pay back the loan over 15 years (paying 1/15th of the withdrawal amount every year), starting the second year after your withdrawal. So if you withdrew in 2016, you’d have to start repayments in 2018. The maximum amount you’d have to pay each year is $1,667. If you repay less than the required annual amount, the difference will be included as income for the year and you will be taxed on it.

The problem with using the Home Buyers Plan (especially if you contributed to your RRSP with the intention of using the funds for retirement) is that you lose tax-free growth on the funds you withdrew, meaning you’ll have less money available for retirement.

Whether or you should use your RRSP for the Home Buyers Plan or if you should pull money from other savings will depend on your situation, and you should talk to an advisor if it’s right for you.

In the next video I’ll outline the rules around pulling from your RRSP if you’re using the Lifelong Learning Plan.

Home Buyers’ Plan: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html