For many Canadians, homeownership is a lifelong dream. However, rising property prices and the cost of living make it increasingly difficult to save for that all-important down payment. Fortunately, the government has introduced a powerful tool to help first-time home buyers: the First Home Savings Account (FHSA). If you’re serious about owning a home one day, opening an FHSA as early as possible is one of the smartest financial moves you can make.
But this isn’t just a message for young adults—parents should also encourage their children to open an FHSA as soon as they qualify. By instilling smart financial habits early, parents can help set their children up for homeownership success in the future.
What is an FHSA?
The First Home Savings Account (FHSA) is a registered account designed to help first-time home buyers save up to $40,000 tax-free. Contributions are tax-deductible (like an RRSP), and the money inside the account grows tax-free (like a TFSA). When you withdraw funds to buy your first home, you won’t pay any taxes on the money, including investment growth.
The Power of Early Contributions
Although the maximum annual contribution is $8,000, the sooner you open an FHSA, the longer your money has to grow. Investing within the account allows you to benefit from compound growth over time. Even if you can’t contribute the full amount each year, starting early means your money has more time to work for you.
For example, if you invest $8,000 per year for five years and earn an average return of 6%, your total investment would grow beyond your initial $40,000 in contributions, giving you a significantly larger down payment. The longer you hold your investments in the FHSA, the greater your financial advantage when it’s time to buy a home.
Tax Advantages: A Dual Benefit
One of the best parts of an FHSA is the double tax advantage:
- Tax-Deductible Contributions – Every dollar you contribute reduces your taxable income for that year, meaning you could pay less in taxes or receive a larger refund.
- Tax-Free Growth and Withdrawals – Unlike non-registered savings, where you pay taxes on investment gains, FHSA investments grow tax-free. When you withdraw the funds to buy a home, you won’t owe taxes on the growth or original contributions.
Parents: Help Your Children Secure Their Future Home
As a parent, you want your child to succeed in life, and homeownership is a major milestone. Encouraging your child to open an FHSA as soon as they qualify can significantly ease their path to buying their first home.
Here’s how parents can help:
? Educate Early – Teach your children about the benefits of investing and saving wisely.
? Help with Contributions – If financially possible, consider gifting your child money to kickstart their FHSA savings.
? Encourage Smart Investing – Guide them to invest within the FHSA instead of letting the money sit in cash, so it grows over time.
? Lead by Example – Show them how financial discipline can lead to long-term success.
Maximizing Your FHSA Potential
- Start Early: Even small contributions add up over time. Open an account as soon as you qualify to take full advantage of tax-free growth.
- Invest Strategically: Instead of letting your money sit in cash, consider investing in mutual funds, ETFs, or stocks within the FHSA for higher potential returns.
- Use RRSPs Wisely: The FHSA can be combined with the RRSP Home Buyers’ Plan (HBP), allowing you to withdraw up to $35,000 from your RRSP for a home purchase. This means a couple could potentially access over $150,000 tax-free for their first home!
Your Future Home Starts with a Smart Financial Decision Today
The FHSA is a once-in-a-lifetime opportunity for first-time home buyers. The earlier you open an account, the more time your investments have to grow, making your dream home more attainable. And with the right guidance from parents, young adults can get a major head start on their journey to homeownership.
Don’t wait—start saving now and give yourself or your children the best chance of stepping into homeownership with confidence.
Adhi Alliance is here to help you make the most of your financial future. Contact us today to learn how to set up an FHSA and start growing your home savings the smart way!