19 Jul How to Use Your RRSP to Buy a House
How to Use Your RRSP to Buy a House: A Step-By-Step Guide
If you’ve always dreamed of owning a home but don’t have enough for a down payment, using your RRSP to buy a house may be right for you. Using your Registered Retirement Savings Plan (RRSP) to buy a home is one of the most advantageous ways to do so. To do so, you’ll need to withdraw money from your RRSP and pay taxes on those funds. However, once you own that home, the benefits of doing so are many. You’ll avoid paying rent forever and build equity faster than if you kept renting. In addition, buying a home with an RRSP can reduce your taxes in the future, as long as you meet some specific conditions. Let’s take a look at how to use your RRSP to buy a house step by step:
What is an RRSP?
RRSP stands for Registered Retirement Savings Plan. This is a savings plan that allows you to contribute money towards your retirement by reducing taxable income. You can withdraw the funds in your RRSP at any time during your life (as long as you meet certain conditions such as being over the age of 61).
How to use your RRSP to buy a house: Why it’s smart
There are plenty of good reasons to use your RRSP to buy a house. First, if you withdraw funds from your RRSP to buy a home, you won’t be taxed on it until you sell the home. This is because you’re using your RRSP as a loan. Second, if you plan to keep the house for at least five years, any money you withdraw from your RRSP to buy it will likely be tax deductible. If you have a high income, it may make sense to withdraw more from your RRSP to buy the house, as you’ll likely be able to claim a larger tax deduction. Third, if you eventually sell the house, you won’t have to pay any tax on the money you withdrew from your RRSP to buy it.
Step 1: Decide how much you want to withdraw from your RRSP
When you withdraw money from your RRSP to buy a house, you’re taking out a loan against your savings. You can decide how much you want to withdraw, but make sure you have enough money saved up to cover that amount in the future when you want to re-contribute. You have the ability to withdraw up to $25,000 per year (as of 2019) from an RRSP.
If you withdraw all of the money in your RRSP at once, but if you do that, the money you withdraw will be taxed at your highest marginal tax rate.
Step 2: Find out how much you’ll pay in taxes
The next step is to add up how much you’ll pay in taxes on the money you withdraw from your RRSP. You’ll pay taxes as if you had earned that money as income during the year. To find out how much you’ll pay in taxes on the money you withdraw from your RRSP, use the Canada Revenue Agency’s (CRA) Tax Credit Calculator. You can also use the RRSP withdrawal calculator below:
Step 3: Decide how much of that money you want to put towards the down payment and closing costs, and how much you’ll use for the deposit.
A deposit is the money you put down to secure the home. It can be any amount, but it’s usually 10% of the purchase price of the home. You can use the money you withdraw from your RRSP to pay the deposit. You’ll use the funds you withdrew from your RRSP to pay the down payment and closing costs. You can use the RRSP withdrawal calculator below to figure out how much you’ll have after you subtract the taxes you’ll have to pay on the money you withdraw:
Step 4: Buy the home!
Once you have enough money for the down payment and closing costs, you can go out and buy the house. Congratulations! You now own a home. The good news is that you can use any funds you’ve withdrawn from your RRSP to buy the house and not pay any taxes on them now. This is because you’re repaying the RRSP loan with the funds you withdrew to make the down payment.
All of the taxes you’ve already paid on the RRSP money will go towards repaying the loan. These are the conditions you must meet to use your RRSP to buy a house and not pay taxes on the money you withdrew: – You must be the owner of the home for at least five years.
The money you withdrew from your RRSP must be repaid in equal instalments over a 10-year period. – You can’t withdraw more from your RRSP than the amount you’ll be able to repay over 10 years.
When used properly, withdrawing money from your RRSP to buy a house can be a great way to get a foot on the property-owning ladder. However, you do need to be careful that you make sure you meet the repayment conditions specified by the CRA. If you don’t, you’ll face stiff penalties and interest on the money you didn’t pay back in time. Using your RRSP to buy a house can be a great way to break into the real estate market. It can be a great strategy if you plan to keep the house for at least five years, have saved up a good down payment, and are willing to pay taxes on the money you withdrew from your RRSP.
We here at Capital Mortgages in Ottawa look forward to assisting you with all your Ottawa mortgage broker needs. Contact us today by calling us at: 613-228-3888 or email us direct at: email@example.com
You can use these links to APPLY NOW or CONTACT US.
You can also click here.