Money Smarts Blog Investing and Personal Finance
The reason you'd (she'd) put money in an RRSP now to withdraw through the HBP is tax arbitrage.
Forget the fact that the plan is called a "retirement savings plan" and think of it this way: would it be useful for you to get tax discount of $[x] today on a loan you establish to yourself and pay back over 15 years?
Also, the repaid loan could be withdrawn at any time you have lower-than-normal income, providing a form of emergency funding.
And even if you keep all the funds in the account until you actually retire, and then pay tax on them, you've effectively moved the tax on that income far far far into the future, providing a significant discount on those tax dollars.
In fact, even if you participate in the HBP and never even pay the funds back, you've still moved the tax due on that income as much as 15 years into the future.
No matter how you run the math on this, there's a measureable benefit and by design there is no way for this not to be true. Financial advisors who argue otherwise don't understand either the basic mechanics of RRSPs or basic financial math.
Last edited by MoneyGal; 2012-11-02 at 06:20 AM.
*Puts hand up*
I've got a question on the subject. If I borrow money from my RRSP for the HBP and don't repay it the amount that was supposed to be repaid that year goes on my income. Is that contribution room lost just like if I simply pulled the money from my RRSP outside of the HBP?
Also, should anyone find themselves as clueless regarding this topic as I was, it looks like all we have to is submit the following form to her our RRSP issuers(BMO, TD, ING, etc.):