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Repaying RRSP Home Buyers Plan

After borrowing from an RRSP (Registered Retirement Savings Plan) with either the HBP (Home Buyers Plan) or LLLP (Life Long Learning Plan), there comes a time when you need to either put the money back into the plan or pay tax on the money.  I do believe saving for the future is good, however putting the money back is not always the best option, here is a common example of when back these plans do not make sense.

Example.  A young couple wants to buy a house; they decided to use the Home Buyers plan for part of their down payment.  A few years later it is time to start putting the money back into their RRSP.  Often they have had kids by this time and one of them may be staying at home with the kids.  If staying at home they likely have no income, in this case I recommend not contributing to the RRSP for this person, but instead make a contribution in the spouses name who is working.

 

What ends up happening is the spouse not earning any money will have to pay tax on the RRSP payment that was owed; often this is nothing or small.  The RRSP room is lost.  However the spouse who has an income makes a RRSP contribution and since they are in a higher tax bracket they receive a bigger tax break.  As a result the same money put into an RRSP gets a bigger tax benefit.

I do believe in saving, however just because there is tax owed if the funds are not returned does not mean it is the best place for you to put your money.  A little planning here can make a big difference.  As always I recommend talking to a professional.  If you have any questions and are in BC I am happy to help.

Disclaimer

This post has been kept general, to find out if an RRSP is right for you, and how to best use this tool to move forward you should discuss it with a professional.  Details can be found on the government of Canada website. This information is assumed correct, but is for information purposes only and it is up to the reader to verify it’s accuracy before acting on anything written on this site.

This website is focused on rules as they impact residence of British Columbia.  My business is focused on Greater Vancouver, Langley and Surrey and I am happy to discuss these options with people residing in this area.