# RRSP or TFSA for a downpayment



## bigmoneytalks (Oct 3, 2014)

Hi all,

I'm curious to know what you guys think about my situation.

I just bought a house and will be taking possession in a few weeks but wanted to take advantage of the HBP. But here's my situation, I only need $25,000 and I have this money in my RRSP which has been doing really well, 10% return. I also have 25k in my TFSA but sitting in cash, not earning anything but I also was thinking investing it in this market soon. So not sure what will be the right decision.

a) withdrawal the RRSP and cash out on the return but pay it back and lose out on future growth; or
b) withdrawal from my TFSA because the cash is just sitting there but lose out the tax-free growth if I invest it.

Both accounts to me are treated as retirement accounts.


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## Woz (Sep 5, 2013)

You’ll pay less tax in retirement if you use the HBP instead of the TFSA for the $25k. It’s a bit more of a hassle though.

You have the tax refund from your RRSP in both scenarios and the TFSA grows tax free whereas the RRSP grows tax deferred so it’s better for you if your TFSA grows more than your RRSP.


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## nobleea (Oct 11, 2013)

Do the HBP from the RRSP, then every year once HBP repayments start, contribute 1/15th of the 25K to your RRSP (from TFSA) to offset the payment. The HBP is essentially a no interest loan.
Alternatively, you can withdraw the 25K from RRSP under HBP, then contribute the 25K in TFSA as an RRSP contribution. You get the tax refund (say 8K). Put that in the TFSA. When your HBP repayments start in 2016 or whatever, withdraw from your TFSA to pay back the RRSP. It would probably be 6 or 7 years from now before you actually have to start repaying with new money.


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## indexxx (Oct 31, 2011)

Why not use the RRSP for the HBP payment, and then put your TFSA cash to work in the same investments as you currently hold with your RRSP? That way you get the HBP, but maintain the potential growth of your investments. that much sitting in cash in a TFSA isn't doing you any good- the whole point of a TFSA is to get tax-free growth.


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## bigmoneytalks (Oct 3, 2014)

indexxx said:


> Why not use the RRSP for the HBP payment, and then put your TFSA cash to work in the same investments as you currently hold with your RRSP? That way you get the HBP, but maintain the potential growth of your investments. that much sitting in cash in a TFSA isn't doing you any good- the whole point of a TFSA is to get tax-free growth.


If buy the same investments I'm technically buying them at a high price hence why I have a good return on my RRSP.


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## Cal (Jun 17, 2009)

I wouldn't recommend a retirement fund sitting in cash.

Do you need 25,000 to round out your dp or to pay off the house?

For dp, I would use rrsp hb plan, to pay off house use up the tfsa sitting in cash, then put available $ into it next year.


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## My Own Advisor (Sep 24, 2012)

FWIW, I treat both RRSP and TFSA as retirement accounts as well.

When we bought our house, we didn't use the HBP. We used cash inside our TFSA and inside a savings account.

In retrospect, I'm glad I did because:

a) I didn't have to worry about (yet another payment) RRSP repayments,
b) I wasn't borrowing from my "future self" and all the gains the RRSP investments made, and
c) You are using after tax-income to payback the amount you've withdrawn from the RRSP. I prefer to pay taxes only once...that's plenty enough.


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> ... c) You are using after tax-income to payback the amount you've withdrawn from the RRSP. I prefer to pay taxes only once...that's plenty enough.


Then too ... if there is a differential between a refund at 22% (to throw numbers around :biggrin: ) and a repayment after paying 30% (future income always goes up, right?) - it might not work out all that well.

Something to think about and run some scenarios for ...


Cheers


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## Mortgage u/w (Feb 6, 2014)

My Own Advisor said:


> a) I didn't have to worry about (yet another payment) RRSP repayments,
> b) I wasn't borrowing from my "future self" and all the gains the RRSP investments made, and
> c) You are using after tax-income to payback the amount you've withdrawn from the RRSP. I prefer to pay taxes only once...that's plenty enough.


For these reasons alone, it makes most sense (for me) to take your DP from your TFSA. 
Also, your money is doing fairly well in your RRSP.....I wouldn't touch it.


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## Eclectic12 (Oct 20, 2010)

Come to think of it ... if one has the cash flow and/or TFSA income to fund the minimum RRSP repayments - then one can eliminate the "after tax repayment" scenario and possibly take better advantage of a higher income level generating a higher tax bill and the RRSP contribution resulting in a higher refund.


As usual, YMMV ...


Cheers


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## bigmoneytalks (Oct 3, 2014)

Does anyone know how much time I have to use HBP? I take possession on my house on Nov 1st so how long can still be eligible? 3 months from Nov 1st? The cra has several deadlines which are confusing


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