Money123: 5 things to know about the FHSA

What to know about the FHSA

The first home savings account (FHSA) has been available in Canada for less than a year, but the federal government says more than half a million accounts have already been opened as of the start of 2024.

Before you rush out to flood your down payment savings into an FHSA, this week’s Home School instalment is taking a look at five things prospective homebuyers should know about the account.

The FHSA, if unfamiliar, allows individuals to save up to $8,000 per year towards the purchase of a first home. That money is tax-free on the way in and on the way out, providing an income tax deduction upfront and allowing funds to grow tax-free until withdrawn as part of a down payment.

Of particular note is what to do with the money once it’s in the account, however. Pat Giles, vice-president of saving and investing at TD Bank, tells Global News that buyers ought to consider their risk tolerance when deciding on investment opportunities.

“Everyone’s situation is different and you have to take into account the time horizon,” Giles says.

Read on here to learn more of the tips and tricks for the FHSA (including that you don’t actually have to be a first-time buyer to use it).

Home insurance costing more these days?

Existing Canada homeowners are also feeling financial pressure, according to a new report released this week from My Choice Financial.

Home insurance rates are rising amid extreme weather and soaring replacement costs, the insurance aggregator and comparison website said.

In January, there was a 7.66-per cent increase in the national home insurance price compared with the same time last year, per the report. Saskatchewan and Manitoba saw double-digit increases in their rates, with Ontario, Nova Scotia and Prince Edward Island seeing hikes below the national average.

As long as claims continue to increase, the insurance industry will respond by raising rates to pay off those claims, said Daniel Ivans, an insurance expert at Ratesdotca.

“There’s increasing financial pressure that it could put obviously on first-time homebuyers or even anybody that’s on a budget where you’re seeing these substantial increases in insurance,” he told Global News in an interview.

But there are some options available to homeowners to help keep those rates in check, experts say. Read more.

Bitcoin’s new record

It’s been a booming few months for bitcoin, with the popular cryptocurrency briefly touching a fresh all-time price high earlier this week.

Much of the cryptocurrency’s run is tied to the launch of spot bitcoin exchange-traded funds (ETFs) in the United States, which were approved at the start of 2024.

The benefit of ETFs over traditional digital wallets used to hold bitcoin is that it removes the technical hurdles for investors who have been curious about crypto but were hesitant to jump into unfamiliar territory, says Purpose Investments CIO Greg Taylor.

“With having bitcoin ETFs a little more established and easier to access, more people are saying, ‘Well, maybe I should have a little bit of my portfolio in this,’” he says.

Bitcoin remains “volatile,” Taylor says, but after returning to new highs following a disastrous year in 2022, he says the popular coin might be proving it has some staying power.

Here’s what he and other experts have to say about investors who might be curious about getting exposure to bitcoin in their portfolio.

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– THE QUESTION –

“As couples before and in retirement receive many tax breaks, such as income sharing, how can a single person navigate this unfairness to make the most of what they have such as collecting OAS without clawbacks?“

— A Money123 reader 

“Single retirees are definitely at a disadvantage from a tax planning perspective in retirement. Spouses can split pension income including registered retirement income fund (RRIF) withdrawals after 65 as well as defined benefit pension income. This can result in significant tax savings when income is spread across two sets of low tax brackets instead of just one.

There is no silver bullet for singles. If you have a relatively high income exceeding about $91,000 for 2024, your Old Age Security (OAS) pension is subject to a recovery tax or clawback. This effectively increases your marginal tax rate by 15% to as high as 62%, meaning you only keep 38 cents of your last dollar of income.

Single retirees may need to reconsider whether RRSP contributions could be detrimental if their income may be high and subject them to an OAS clawback in retirement. Sometimes, contributing to an RRSP may provide short term tax savings at the expense of higher tax in the future. This is something to consider especially in one’s 50s and 60s as they plan ahead for retirement.

Single retirees should also consider early RRSP withdrawals prior to age 72 to take advantage of low tax brackets to potentially maximize OAS benefits later in retirement. They should be mindful of the types of income they are earning in their non-registered accounts and the timing of that income. Certain types of income, like capital gains, may be preferable to interest or dividends. Deferral of OAS to as late as age 70 should be considered for those 65 or older and still working.

The good news is that a retiree with $91,000 plus of income has a relatively high income. This is little consolation from someone who is losing a government benefit that their tax dollars helped fund in the first place, though. It is a good reason to try to plan ahead for retirement to not only validate you are on track, but also figure out the most tax effective way to plan your income for the decades to come.”

–  Jason Heath, managing director, Objective Financial Partners

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