Real Estate

Sold first home to buy second home. Mistakes were made, how do I minimize the damage?

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  • Aug 24th, 2021 10:01 am
[OP]
Deal Addict
May 14, 2010
1056 posts
107 upvotes
Halifax

Sold first home to buy second home. Mistakes were made, how do I minimize the damage?

Not sure if this should be in real estate or personal finance but we bought our first home 5 years ago using the first time home buyers plan to withdraw RRSP. Last month my wife got a new job and we moved.

The mistake, was buying the second home before selling the first home. We semi panicked with the Covid market madness and I didn't understand bridge loan details well enough. We are in semi rural NS.

To buy the second home, I withdrew $45,000 RRSP and paid the withholding tax. I was laid off the end of last year and been on unemployment/cerb.

We have sold our first home now and have $95,000 in the bank and want to put money back into retirement, have a down payment for car and upgrade the new house slightly.

How do I figure out the best use of that money, What do we need to know about finding a fee only financial advisor in Nova Scotia?
11 replies
Member
Dec 21, 2010
303 posts
211 upvotes
When you withdrew your RRSP you pay full tax on the withdrawal year and the contribution room will be permanently lost. If you are unemployed today, there is not much reason to contribute to RRSP since you are not paying tax this year anyway.

Would say you invest in a non tax shelter account when you are unemployed. Once you start employment, you should start investing in TFSA. If you are employed full year, start contributing to RRSP.

Would also suggest you get back employed before you consider buying a car or upgrade your house.
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
What exactly is the issue?
Deal Expert
User avatar
Jan 27, 2004
49980 posts
14012 upvotes
ONTARIO
licenced wrote: What exactly is the issue?
He said

"Sold first home to buy second home. Mistakes were made, how do I minimize the damage?"

So there is no way to minimize the damage. Its already been done. You made the withdrawal.

General personal finance rules

1. Contribute to RSP during high income earning years
2. Contribute to TFSA during non-high income earning years or for funds needed within a short time horizon.

General overall life advice. Don't panic! Sit down. Breath. Look @ all your options and outcomes/consequences of such. Especially for large purchases.
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
Maybe you're right, it's not clear to me since bridge loans was what his mistake was about without qualifying exactly what made it a mistake
The mistake, was buying the second home before selling the first home. We semi panicked with the Covid market madness and I didn't understand bridge loan details well enough. We are in semi rural NS.
UrbanPoet wrote: He said

"Sold first home to buy second home. Mistakes were made, how do I minimize the damage?"

So there is no way to minimize the damage. Its already been done. You made the withdrawal.

General personal finance rules

1. Contribute to RSP during high income earning years
2. Contribute to TFSA during non-high income earning years or for funds needed within a short time horizon.

General overall life advice. Don't panic! Sit down. Breath. Look @ all your options and outcomes/consequences of such. Especially for large purchases.
[OP]
Deal Addict
May 14, 2010
1056 posts
107 upvotes
Halifax
licenced wrote: Maybe you're right, it's not clear to me since bridge loans was what his mistake was about without qualifying exactly what made it a mistake
My apologies, I thought I could get a bridge loan and use the profits from selling our house to cover the down payment for the new house. Specifically I thought we only had to have our current home for sale to get a bridge loan. I have since learned the correct information.

Because we couldn't use our profit from the first home in order to get the second home I withdrew a large amount from my RRSP that I would have rather left for retirement.

My hope is that if it was possible the best option would be to put the money back as if I never withdrew it. I do have the contribution room in my RRSP. But based on the replies that isn't possible so the next option is to put the money into an TFSA instead.
Sr. Member
Mar 28, 2017
612 posts
489 upvotes
UrbanPoet wrote: He said

"Sold first home to buy second home. Mistakes were made, how do I minimize the damage?"

So there is no way to minimize the damage. Its already been done. You made the withdrawal.

General personal finance rules

1. Contribute to RSP during high income earning years
2. Contribute to TFSA during non-high income earning years or for funds needed within a short time horizon.

General overall life advice. Don't panic! Sit down. Breath. Look @ all your options and outcomes/consequences of such. Especially for large purchases.
I disagree, I feel like people should max TSFA 1st
Deal Fanatic
Jul 3, 2011
6517 posts
3788 upvotes
Thornhill
RandomCDN wrote: My apologies, I thought I could get a bridge loan and use the profits from selling our house to cover the down payment for the new house. Specifically I thought we only had to have our current home for sale to get a bridge loan. I have since learned the correct information.

Because we couldn't use our profit from the first home in order to get the second home I withdrew a large amount from my RRSP that I would have rather left for retirement.

My hope is that if it was possible the best option would be to put the money back as if I never withdrew it. I do have the contribution room in my RRSP. But based on the replies that isn't possible so the next option is to put the money into an TFSA instead.
Thanks for the explanation.

I gather you bought the house without first seeking out mortgage advice or did you get bad mortgage advice?
Deal Addict
Oct 4, 2009
3294 posts
2470 upvotes
Montreal
RandomCDN wrote: My hope is that if it was possible the best option would be to put the money back as if I never withdrew it. I do have the contribution room in my RRSP. But based on the replies that isn't possible so the next option is to put the money into an TFSA instead.
Since you have the contribution room you can absolutely recontribute the 45k into your RRSP and recuperate the withholding plus any other taxes that will be owed when you do your 2021 taxes. The 45k RRSP contribution room will be lost. The question is whether that is your best option, depending on how much other income you will have this year compared to future years.

Someone upthread said you wouldn’t be paying tax this year, that’s incorrect. Apart from very uncommon situations, pretty much anyone who pulls out 45k of RRSPs in a year is going to be paying some taxes on that withdrawal.
Deal Addict
Mar 30, 2017
1185 posts
936 upvotes
GVA
johnnyepy666 wrote: I disagree, I feel like people should max TSFA 1st
depends on current marginal tax rate.
if rate at 35%- 40%+, get rrsp first to deduct tax until marginal rate below that threshold. use deduction room for future high rate.
if under, get TFSA first
whichever max out should use the next.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎
[OP]
Deal Addict
May 14, 2010
1056 posts
107 upvotes
Halifax
licenced wrote: Thanks for the explanation.

I gather you bought the house without first seeking out mortgage advice or did you get bad mortgage advice?
Did it with out asking enough questions about mortgages for sure. We are happy with the broker we used

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