FHSA vs. RRSP: The Best Way to Save for Your First Home

The Two Best Accounts for First-Time Buyers

Canada offers two tax-advantaged accounts specifically designed to help you buy your first home: the First Home Savings Account (FHSA) and the RRSP Home Buyers' Plan (HBP). Both give you a tax deduction when you contribute, but they work very differently when you withdraw.

FHSA: The Newer, Simpler Option

Launched in 2023, the FHSA lets you contribute up to $8,000/year (lifetime max $40,000). You get a tax deduction on contributions - just like an RRSP. But the real advantage? Withdrawals for a qualifying first home are completely tax-free, with no repayment required.

• Annual limit: $8,000 (unused room carries forward, max $8,000)
• Lifetime limit: $40,000
• Tax deduction: Yes, like RRSP
• Withdrawal: Tax-free for qualifying home purchase
• Repayment: None required
• Must use within: 15 years of opening (or age 71)

RRSP Home Buyers' Plan (HBP)

The HBP lets first-time buyers withdraw up to $60,000 from their RRSP (increased from $35,000 in 2024). You get the RRSP tax deduction on contributions, but you must repay the full amount over 15 years - starting the 5th year after withdrawal.

• Withdrawal limit: $60,000 per person
• Tax deduction: Yes, on contributions
• Withdrawal: Tax-free IF repaid
• Repayment: Mandatory over 15 years (grace period: 5 years)
• Missed payments: Added to taxable income

Head-to-Head Comparison

The Best Strategy: Use Both

A couple can access up to $200,000 in tax-advantaged funds:

• 2 × FHSA = $80,000 (tax-free, no repayment)
• 2 × HBP = $120,000 (tax-free if repaid over 15 years)

Priority order: Max out FHSA first (no repayment obligation), then use HBP for additional funds if needed. The FHSA money is truly free; the HBP money is an interest-free loan from your future self.

Key Gotchas

• FHSA 90-day rule: Funds must be in the FHSA for 90 days before withdrawal
• HBP repayment trap: Missed HBP payments become taxable income - at your full marginal rate
• FHSA expiry: If you don't buy within 15 years, funds transfer to RRSP (no new room created)
• Both require first-time buyer status: Haven't owned a home in 4+ years

Bottom Line

The FHSA is the superior account for most first-time buyers - tax deduction going in, tax-free coming out, no repayment. But the HBP provides $20,000 more per person. The optimal strategy is often to max both accounts simultaneously while saving in a TFSA for anything above.