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Home Buyers Plan rules: RRSP withdrawal now $25,000

If you are a first time home buyer, you can now withdraw up to $25,000 (up from $20,000 in 2008) out of your RRSP tax free. If you and your spouse are purchasing the property together, you can EACH withdraw $25,000 from your Registered Retirement Savings Plan investments.

With respect to repayment, the basics are that are you have up to 15 years to pay back your RRSP starting the 2nd year after the year you withdraw the funds. Starting in the 2nd year, 1/15 of your borrowed amount must be paid back per year. If you do not repay 1/15 of the borrowed amount per year, you will be required to add the amount as income when filing your taxes.

Some additional terms to keep in mind;

– You must be a first time home buyer and a resident of Canada at the time of withdrawal.
– You purchase/build the home before October 1st after the year of withdrawal.
– RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.

This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market if you have not been able to save up a down payment another way.

Some may argue that you are missing out on growth in your RRSP while the money is borrowed. However, the other side of the argument is that appreciation of the home and the build up in equity you will see through mortgage paydown may more than make up for lost gains in your RRSP portfolio. And, it goes with out saying that RRSP contributions after purchasing the home should be part of the plan, so eventually you will re-stock your RRSP.

For questions on the Home Buyers Plan, visit the following link, or contact me on my cell at any time at (780) 934-8514.

http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

Sarah Dulmage, Realtor
Re/Max Real Estate
(780) 934-8514

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