Real Estate

Does RRSP withdrawal have to go to the down payment? Or can it cover monthly payments afterwards instead?

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  • Sep 11th, 2020 2:41 am
[OP]
Member
Jan 3, 2008
218 posts
18 upvotes
Victoria

Does RRSP withdrawal have to go to the down payment? Or can it cover monthly payments afterwards instead?

Hi there! My wife and I are considering purchasing a place in the near future, but I've been putting all my savings in TFSA so far instead of RRSP (I expect higher income in the next ~5 years, and I've been trying to maximize tax savings). I just learned though, that for an RRSP withdrawal towards a first time home purchase, funds must have been in the RRSP for at least 90 days. I'm reluctant to go and put $35K into my RRSP now though, because it's possible a deal for us will close before then. If that happens, I'd need those funds. Would I be stuck paying tax for withdrawing it in that case? I'd need those funds to go towards the down payment.

Or, could I start contributing smaller amounts monthly to my RRSP, roughly equivalent to what the mortgage payment will be, then roll those funds back out again 90 days after each deposit, to pay the mortage payments? Is that allowed? Or does it have to go towards the down payment at the time of purchase?

Or... should I just use my TFSA money towards the down payment (which I understand results in me freeing up that same amount to contribute back into my TFSA at any point in the future), and realize the tax savings of my RRSP contributions later when I'm earning a higher income?

My wife's money has been in RRSP funds long enough thankfully, so it's not a concern for her.

Seems like I should have been more on top of this and transferred over the $35K maximum into RRSP to get the tax credit and put it towards the down payment. I'm worried I may be missing that boat.

Any input?
12 replies
Sr. Member
Jan 5, 2020
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The only thing you need to concerned about is the 90 day rule. The funds must be in the RRSP for at least 90 days. If you cannot meet this requirement as a result of the closing date then you shouldn't contribute the $35K.

At the end of the day, its not a big deal. You did the right thing by trying to max out TFSA - this is the right course when you are young and you expect your income to go up. Even if you were to take out money from your RRSP under the HBP, you would have to repay it back.

At this point, I would recommend that you use the funds in your TFSA for the down-payment and then work towards rebuilding your TFSA in the future.
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Sep 14, 2006
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Newuserid wrote: The only thing you need to concerned about is the 90 day rule. The funds must be in the RRSP for at least 90 days. If you cannot meet this requirement as a result of the closing date then you shouldn't contribute the $35K. Factoring in $35k in one shot is a lot and likely is more than what he really needs to get a full refund on his income taxes paid.

At the end of the day, its not a big deal. You did the right thing by trying to max out TFSA - this is the right course when you are young and you expect your income to go up. Even if you were to take out money from your RRSP under the HBP, you would have to repay it back.

At this point, I would recommend that you use the funds in your TFSA for the down-payment and then work towards rebuilding your TFSA in the future.
In OP’s situation, if he cannot leave the RRSP contributions longer than 90 days, then TFSA is an option if he needs the cash in the near future but if he can do the 90 day time, he should absolutely put it in his RRSPs first.

The tax savings from the refund you get through RRSP contributions when you do your taxes likely will be more return then the investments you put your money in for your TFSA.

However, everyone’s situation is different so it’s hard to be hard pressed on one vs the other.
Last edited by bobbings on Sep 9th, 2020 11:02 am, edited 1 time in total.
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Aug 20, 2015
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To answer your question, HBP money can be used towards anything you want. You don't even have to put it to the house if you don't want to, they don't track where the money goes after it is withdrawn.

Regarding your other points, I don't think you can just keep taking RRSP money out at different times for HBP, pretty sure it needs to be done in one shot. Also you can always make the RRSP contribution but do not claim the deduction this year and just wait for future years when you believe your tax bracket will be higher. The main concern is that you move 35k into your RRSP and then close on a place in less than the days required for HBP, but you can always work with the seller on the closing date.
Sr. Member
Jan 5, 2020
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bobbings wrote: In OP’s situation, if he cannot leave the RRSP contributions longer than 90 days, then TFSA is an option if he needs the cash in the near future but if he can do the 90 day time, he should absolutely put it in his RRSPs first.

The tax savings from the refund you get through RRSP contributions when you do your taxes likely will be more return then the investments you put your money in for your TFSA.

However, everyone’s situation is different so it’s hard to be hard pressed on one vs the other.
You make a valid point. However, OP mentioned that he expects to make higher income in 5 years which makes me think that OP's current marginal tax rate would not be that high. Therefore, putting in a lump sum contribution of $35K all at once may not result in maximum tax refund. I would only recommend putting in the $35K if OP's current year income will be $100K+. Otherwise, its not worth it.
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Feb 22, 2011
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tsingoo wrote: To answer your question, HBP money can be used towards anything you want. You don't even have to put it to the house if you don't want to, they don't track where the money goes after it is withdrawn.

Regarding your other points, I don't think you can just keep taking RRSP money out at different times for HBP, pretty sure it needs to be done in one shot. Also you can always make the RRSP contribution but do not claim the deduction this year and just wait for future years when you believe your tax bracket will be higher. The main concern is that you move 35k into your RRSP and then close on a place in less than the days required for HBP, but you can always work with the seller on the closing date.
Same with the life long learning plan, they don't even check that you are in school when you make a withdrawl
[OP]
Member
Jan 3, 2008
218 posts
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Victoria
Newuserid wrote: The only thing you need to concerned about is the 90 day rule. The funds must be in the RRSP for at least 90 days. If you cannot meet this requirement as a result of the closing date then you shouldn't contribute the $35K.

At the end of the day, its not a big deal. You did the right thing by trying to max out TFSA - this is the right course when you are young and you expect your income to go up. Even if you were to take out money from your RRSP under the HBP, you would have to repay it back.

At this point, I would recommend that you use the funds in your TFSA for the down-payment and then work towards rebuilding your TFSA in the future.
Right - ok thanks! This tax year I'm in the midst of shifting from $83K to $90K, and it looks like I'll be in the mid $90K range as soon as next year if things go according to plan. Potentially more if I pick up another side contract moonlighting outside of my day job, and we'll also have rental income from the property we're looking to buy, Given all that, and given my lack of preparedness for the 90-day rule, if I try to put that kind of money into my RRSP now we won't have 20% at the expected time of closing. I don't have enough savings to keep that much locked into my RRSP to be used after the purchase.
bobbings wrote:
In OP’s situation, if he cannot leave the RRSP contributions longer than 90 days, then TFSA is an option if he needs the cash in the near future but if he can do the 90 day time, he should absolutely put it in his RRSPs first.

The tax savings from the refund you get through RRSP contributions when you do your taxes likely will be more return then the investments you put your money in for your TFSA.

However, everyone’s situation is different so it’s hard to be hard pressed on one vs the other.
Thanks for the input! As described above, I think my RRSP contributions will serve me better in the future, from a tax perspective. By any chance, do you know if I can preserve my "first time home buyer" benefit for a future home purchase, and just use my wife's benefit on this purchase? Or do I lose my eligibility?

Or - could I accumulate those RRSP funds over the next couple of years, then withdraw and put towards the house, even though at that point we would have owned the home for 2- 5 years?
tsingoo wrote: To answer your question, HBP money can be used towards anything you want. You don't even have to put it to the house if you don't want to, they don't track where the money goes after it is withdrawn.

Regarding your other points, I don't think you can just keep taking RRSP money out at different times for HBP, pretty sure it needs to be done in one shot. Also you can always make the RRSP contribution but do not claim the deduction this year and just wait for future years when you believe your tax bracket will be higher. The main concern is that you move 35k into your RRSP and then close on a place in less than the days required for HBP, but you can always work with the seller on the closing date.
Right - needing to withdraw it all in one shot makes sense. And that's a good point - saving the RRSP benefit for future years is certainly an option. But if I'm doing that, I might as well just wait before I contribute - too, otherwise I create a cash flow/liquidity problem for myself.
Newuserid wrote:
You make a valid point. However, OP mentioned that he expects to make higher income in 5 years which makes me think that OP's current marginal tax rate would not be that high. Therefore, putting in a lump sum contribution of $35K all at once may not result in maximum tax refund. I would only recommend putting in the $35K if OP's current year income will be $100K+. Otherwise, its not worth it.
*knock on wood* I definitely expect to be earning higher income in the coming years. I think that's what's driving my thought process here.
mazerbeaner wrote: Same with the life long learning plan, they don't even check that you are in school when you make a withdrawl
Noted - thanks for the tip. Makes sense. They know you withdrew money and they know you spent money on the house. It doesn't matter that it's that specific money you spent, I guess, as long as you can defend requiring the full balance of the $35K limit for the home, I guess. That reminds me of when I was a kid and I asked my little brother what he wanted for Christmas, and he said, "Why don't we just give each other $20?" I was kind of caught off guard by the absurdity of the idea, but agreed. At Christmas, he handed me my $20. I thanked him, and handed it right back to him. He said "No, you have to give me one of YOUR $20 bills." Haha.
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kurt16 wrote: Thanks for the input! As described above, I think my RRSP contributions will serve me better in the future, from a tax perspective. By any chance, do you know if I can preserve my "first time home buyer" benefit for a future home purchase, and just use my wife's benefit on this purchase? Or do I lose my eligibility?

Or - could I accumulate those RRSP funds over the next couple of years, then withdraw and put towards the house, even though at that point we would have owned the home for 2- 5 years?
It's a one shot deal and definitely for your actual first home purchase only. You won't be able to take advantage of the HBP in the future once you buy this house.

Also, you cannot go back later and apply the HBP after the fact. The $35K max is strictly for you to withdraw to pay off a portion of the house. The $35K can go towards the 20% down payment so you are not paying 20% + additional $35K if that's also another one of your concerns.
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kurt16 wrote: They know you withdrew money and they know you spent money on the house. It doesn't matter that it's that specific money you spent, I guess, as long as you can defend requiring the full balance of the $35K limit for the home, I guess.
You don't need to "defend" anything. There is zero requirement to use any of the RRSP funds, to go towards the home. Absolutely none.

As long as you have the RRSP there for 90 days, are buying a home, and qualify as first time home buyer... then you qualify to withdraw the full HBP amount from RRSP no questions asked.
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Jun 19, 2009
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You have 30 days from closing to make the HBP withdrawal. That 30 days will go towards your 90 days RRSP waiting period. Some pls correct me if I'm wrong
[OP]
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Jan 3, 2008
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Victoria
ipanda wrote: You have 30 days from closing to make the HBP withdrawal. That 30 days will go towards your 90 days RRSP waiting period. Some pls correct me if I'm wrong
That's helpful, thanks! I think we're still going to avoid it though, unless I can borrow against my RRSP balance to contribute to my down payment at the time of closing. Otherwise I'll need that cash to get us to the 20% threshold.
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kurt16 wrote: That's helpful, thanks! I think we're still going to avoid it though, unless I can borrow against my RRSP balance to contribute to my down payment at the time of closing. Otherwise I'll need that cash to get us to the 20% threshold.
You can use the RRSP withdrawl towards the 20% DP.
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[OP]
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Jan 3, 2008
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Victoria
bobbings wrote: You can use the RRSP withdrawl towards the 20% DP.
Yeah sorry I understand that, but it needs to be in the RRSP for a minimum of 90 days though, and it's not in there now. We're hoping to close on a deal in the next 2 months probably. Doesn't seem like it's worth the risk to lock it all in there now. Expecially when I may receive a greater tax benefit from the contribution in the not too distant future.

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