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RRSP Home Buyers' Plan Helps With Downpayment

The federal government has a program in place that is specifically designed to help unlock savings and make it easier to buy a home. It's called the Home Buyers' Plan.

The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $25,000 (after January 27, 2009), from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability.
While many have heard of this plan, understanding what it can really do for you is a bit more elusive. Jesse Merson is a Mortgage Advisor with BMO Financial Group and she does an outstanding job outlining exactly how the RRSP Home Buyers' Plan works and who it can help;
If you fall into either of the following scenarios, you may be able to take advantage of the Home Buyers Plan and benefit from significant tax breaks:

* You do not have enough money for a down payment, but have money in a Registered Retirement Savings Plan (RRSP).

* You have money for a down payment and have unused RRSP contribution room.
How does the Home Buyers Plan work?

If you fit into the first scenario above, you and your spouse or common law partner, can each withdraw up to $25,000 from your RRSP's to help build or buy the same first home for a combined total of $50,000.

If the second scenario is more like your current situation, consider contributing the money you have saved into an RRSP and potentially benefit from a substantial tax refund. The contribution must be within your RRSP contribution limit, which can be found on your most recent Notice of Assessment from the Canada Revenue Agency.

The HBP remains one of the only ways to access your RRSP tax free to kickstart your move into the real estate market. Read more of Jesse's insights on the Home Buyers' Plan via the Move Smartly blog post: The RRSP Homebuyers Plan: An Excellent Way to Save for the Down Payment on Your First Home

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Grossing Up Your RRSP

Deciding whether to put your savings into an RRSP or TFSA can be a tough call to make. However, there are ways to maximize your contribution and get as much as 100% of your savings funds into your RRSP. This is called 'grossing up' your RRSP.

Here is a video that does an excellent job illustrating how to gross-up your RRSP:

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Tax Free Savings Account vs. RRSP

We are just a few short weeks away from the deadline for contributing to your RRSP for the 2008 tax year. March 2nd, 2009 is the final day to make your contribution.

One of the questions many people have this year is regarding the choice between a TFSA or an RRSP? Truth be told, it really isn't a 'choice' as you can and should take advantage of both investment vehicles as they compliment each other well. However, there are important differences between them that you should know about.

Here is a video produced by Interior Savings that illuminates nicely the differences between a TFSA and an RRSP.


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TFSA Tax-Free Savings Accounts Begin in January 2009

We outlined previously some of the basics of the TFSA as compared to the traditional RRSP. But what we failed to mention was that the TFSA is officially being made available to the Canadian public on January 1, 2009.

Any Canadian, no matter what your income is, can contribute up to $5000 to a TFSA and can take the money out at any time on a tax-free basis. There is little reason not to take advantage of this short and long-term hybrid investment option.

Here's a video that discusses the basic details of a Tax-Free Savings Account:

Here is another video that outlines what a middle-aged dual-income couple can do with a TFSA:

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TFSA - Tax-Free Savings Account Comes Into Focus

When Finance Minister David Flaherty announced the creation of a new consumer tax-free vehicle, many people wondered if this would be an initiative to replace RRSP investment or augment it. Let's re-visit David Flaherty's TFSA (Tax-Free Savings Account) announcement from earlier this year.

It seems pretty clear that the TFSA is not an RRSP replacement, but rather another tax-free vehicle you can utilize to save money in both the short and long-term. Perhaps that is the biggest differentiating factor between the TFSA and the RRSP, in that the RRSP is exclusively tailored for retirement savings, whereas the TFSA can be used as more of a hybrid investment option.

On another note, I found it interesting to learn that people in British Columbia (44%) are more likely to open a TFSA account than any other province across Canada according to a recent study conducted by Fidelity Investments. In contrast, Ontario came in at 36%, Quebec at 35%, Prairie Provinces at 30% and the Atlantic Provinces are least likely to take advantage of the TFSA at a paltry 24%.

What many people will be pleased about is that the TFSA can hold virtually the same type of investments as their RRSPs. So investments like cash, GICs, bonds and public equities are all fair game for the Tax-Free Savings Account.

If your financial representative has not talked to you about the TFSA yet, it's probably a good idea to bring it up at your next meeting because it just may be the missing piece to your savings puzzle.

Related News:
Fidelity research shows British Columbians most likely to open a TFSA, Atlantic Canadians the least likely

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What do the Index Numbers Mean?

Today we ended the day with the TSX over 10,000 points, but we've been up and down for quite some time now. Yet few of us ask the question, what do the numbers mean?

Well, it all depends on what stocks you own. The TSX itself has a value in the billions. The number we see quoted in the papers is the S&P/TSX Composite Index, which is a selected group of the largest stocks by market capitalization.

What does this mean?

Well, it means a couple of things. Firstly, it means that if you own a smaller capitalization stock, the progress of your stock might not be indicated by the movement of the Index. The S&P/TSX Composite Index is not the entire TSX.

Secondly, a declining index doesn't mean an end to profit possibilities. There are always small companies that can prosper in conditions that would cause trouble for larger ones. There are also a number of financial investment products that suit each condition. So, a declining index doesn't mean you can't make money, it just means you need to undertake different investment strategies in the short-term, or invest for the longer-term (think back to when we discussed dollar-cost averaging).

Lastly, the index measurement doesn't mean much in the longer-term. It does mean something, but not as much as you might think. It's easy for us to get caught up in day-to-day market movements. But if you're investing for a retirement that is 10 or 20 years in the future, you shouldn't let a downturn in stocks impact your decisions. It's rather like weight loss. Ultimately, it doesn't matter what your weight is every day when you lose weight, it just matters that you're declining over time. With investing, you need to think in terms of months and years rather than days and hours. As I always say, plan your investment strategy based on your personal goals and your risk tolerance. There's no guarantee that you will make money, but a well planned portfolio should make you money while insulating you against losses if the market goes sour.

So, when you see the numbers that are flashing across the news, remember that they aren't the entire index and while they might seem scary, they aren't the full story.

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The Value of Presents

As social adults gift costs form an almost unavoidable part of our budgets. Birthdays, holidays, weddings and anniversaries, they all can require some form of gift (token or otherwise) as a recognition of the event.

Unfortunately, these gifts can be a significant financial cost, especially in busy event years. But how can you do that without being rude?

Gifts of time or service can be the most valuable that you can give. As an example, I know someone who is a lovely chef but doesn't work in that field. As a gift for a close friend, she catered their wedding. I've seem similar situations with people who bake cakes, do video work and so on. These don't just apply to weddings. We all have skills and abilities that we excel at. Accountants can help with taxes, mechanics with car repairs and so on. These gifts can mean so much more than a gift of cash or items, and they give you a chance to provide a meaningful gift of money or time.

As many people suffer from a lack of space in their home and an excess of material goods, today's gift can often become the clutter in tomorrow's basement. While not all gift situations are appropriate for a gift of time or a service, a surprisingly large amount are, and often friends and family are unaware of your talents or are afraid to ask for their use.

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