RRSP contributions and home ownership

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Every Canadian is at least remotely familiar with RRSP’s. At the very least we know that they are what the acronym stands for: Registered Retirement Savings Plan. It is a government program that everyone that can, should be putting money in to save up for an eventual retirement. However, it is very common for younger people to not use the program because retirement seems like a lifetime away. What many people don’t know is that RRSP contributions can be used for more than just saving for a retirement. It can help you buy your first home.

An RRSP is good because it allows you put income that you would otherwise pay tax on into a savings plan for your retirement. ¬†Another important reason why an RRSP is good, especially for younger people is the¬†Home Buyer’s Plan (HBP). Without boring you with the fine details, it basically allows you to withdraw up to $25,000 from your RRSP tax-free and use it as a down payment on your first home. This will let you keep thousands of dollars that you would otherwise need to give to the government as income tax. For this reason alone, young people that earn more money than they spend each month should be putting money in an RRSP. You will have to return the withdrawn amount back to your RRSP for the retirement savings it was designed for, but you will return it over a 15 year period so you’ll barely feel it.

I know it’s hard for people in their 20′s or 30′s to think about saving for a retirement even though it’s important. However, it certainly shouldn’t be too hard to think about buying their first home and wanting to save thousands of dollars when doing it. If you have not yet purchased your first home and are saving up for it, put those savings in an RRSP.