What is the Home Buyers’ Plan (HBP)?
The Home Buyers’ Plan (HBP) in Canada allows RRSP holders to borrow up to CAD 35,000 for property purchases. RRSPs are retirement savings and investment vehicles for Canadian workers and the self-employed. Pre-tax funds in an RRSP grow tax-free until withdrawal when taxed at the marginal rate. US 401(k) plans and Registered Retirement Savings Plans have many aspects but also have some significant distinctions.
Learning the Home Buyers’ Plan
The house buyers’ plan is for first-time homebuyers with a formal agreement to purchase or build a qualified house. Disabled people and caregivers qualify. Canadian first-time home purchasers have not owned and inhabited a house for four years, starting Jan. 1 of the fourth year before the withdrawal.
For first-time homebuyer eligibility, money withdrawn in June 2021 would start on Jan. 1, 2017. If they haven’t lived in their current partner’s or spouse’s residence, spouses or common-law partners can qualify alone.
Homebuyers must withdraw $35,000 in one year to qualify for the program. Homebuyers must withdraw funds within 30 days of moving in. After the second withdrawal anniversary, homebuyers have 15 years to return the loan by depositing money into their RRSP accounts with minimum payments. Unpaid, required repayments are taxed as income at year’s end.
A Lifelong Learning Plan
The Lifelong Learning Plan allows Canadians to withdraw tax-free RRSP assets for education and the HBP.
These benefits cover training and education for individuals, spouses, and common-law partners. Individuals cannot utilize LLPs to fund children’s education.
Buying a U.S. Home with Retirement Funds
The U.S. has a comparable program for qualified first-time homeowners. The Taxpayer Relief Act of 1997 allows U.S. citizens to withdraw up to $10,000 from an IRA for home construction or purchase. The HBP enables a tax-free loan, whereas the U.S. taxes first-time homebuyers’ typical IRA withdrawals.
First-time homeowners get tax-free withdrawals from Roth IRAs, which require post-tax deposits. When taking a retirement payout before age 59½, the IRS waives the 10% premature withdrawal penalty.
Conclusion
- Canadian government incentives for first-time homebuyers utilizing retirement money include the Home Buyers’ Plan (HBP).
- You must remove funds within 30 days of moving in and not exceed the limit.
- Repaying retirement plan loans takes seventeen years (with no repayments for the first two years).
