FHSA or RRSP First?

Apr 1

(Six-minute read time)

If you’re a first-time homebuyer wondering where to start saving; First Home Savings Account (FHSA) or Registered Retirement Savings Plan (RRSP)? Both offer tax advantages, but one gives you more flexibility and a unique window of opportunity. Let’s break down what FHSA and RRSP are, their contribution rooms, and why one of them is worth investing in first.

Have questions about how the FHSA and RRSP work? Check out the FAQ section below.

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Should I Add My Savings to FHSA or RRSP?

Before deciding where to put some of your savings, it's important to understand how contribution limits and rules work for both the FHSA and RRSP. These limits affect how much you can invest each year, and how much tax savings or long-term growth you can expect. Here’s a quick breakdown of how each account works when it comes to contributions, carry-forward room, and lifetime limits.

FHSA: Tax-deductible contributions, tax-free growth, tax-free withdrawals for a home.

RRSP: Tax-deductible contributions, tax-deferred growth, taxed upon withdrawal unless using the Home Buyers' Plan (HBP).

FHSA Contribution Basics

Annual Limit: You can contribute up to $8,000 per year.
Lifetime Limit: You can contribute a maximum of $40,000 in total.
Carry-Forward Room: If you don’t contribute the full $8,000 in a year, you can carry forward unused room, but only from one previous year.
Limited Eligibility: You must be a first-time homebuyer (and are not living in a residence you or your spouse owns) in the current year or the previous four calendar years to open and contribute to an FHSA.

RRSP Contribution Basics

Annual Limit: You can contribute up to 18% of your previous year’s earned income, up to an annual maximum set by the CRA.
Lifetime Limit: No specific lifetime cap, but annual limits apply.
Carry-Forward Room: Unused contribution room carries forward indefinitely, allowing you to catch up in future years.
Builds Automatically: Unlike FHSA, the RRSP contribution room accumulates automatically each year once you have earned income and filed a tax return.

FHSA’s are very different from a TFSA or RRSP.

TFSA: You earn contribution room automatically once you turn 18—even if you don’t open an account.
RRSP: You earn room based on your income, whether or not you open the account.
FHSA: You must open the account to start accumulating room. So, if you wait 3 years to open an FHSA, you don’t get those 3 years of contribution room back.

Using your FHSA for a home purchase?

We explain how to withdraw your FHSA funds the right way—so you keep all the tax benefits.

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Why FHSA First?

If you’re a first-time homebuyer, opening a First Home Savings Account (FHSA) early can give you more flexibility and long-term benefits than starting with an RRSP. Here’s why:

You can only build FHSA room once you open it (unlike RRSP, which builds automatically)
Withdrawals are tax-free and don’t need to be repaid (give the same tax break as RRSPs)
Same tax deduction benefit as RRSP, but more flexible for home buying
RRSP Home Buyers’ Plan requires repayment and has a withdrawal limit
FHSA funds can be rolled into an RRSP later (your savings, plus any growth)

Opening an FHSA now keeps your options open and sets you up for either homeownership or retirement.

Scenario: Benefits of Using FHSA First

Conner is 25 years old with an income of $40,000 a year. His goal is to invest $25,000 over three years. He is eligible to open an FHSA but is on the fence about home ownership, so he is considering investing in his RRSP rather than opening an FHSA.

Let’s explore two outcomes Conner can take:

Scenario A: Invest in FHSA First

Contribution room: Conner can contribute $8,000 per year to his FHSA. Over three years, totaling $24,000 (and investing the remaining $1,000 to his RRSP).
Tax deduction: He still gets a tax deduction on his contributions—just like the RRSP.
Tax-free growth & withdrawals: If Conner decides to buy a home later, he can withdraw the money tax-free.
No repayment required: Unlike the RRSP Home Buyer’s Plan (HBP), there’s no payback schedule.
No home? No problem: If Conner chooses not to buy a home, he can transfer the funds to his RRSP later without penalty, preserving long-term retirement growth.

“He gets more flexibility, the same tax benefits, and avoids repayment obligations.”

Scenario B: RRSP Only

Contribution room: Conner’s RRSP limit is approx. $7,200 (18% of his $40,000 income). Over three years, this totals to $21,600. (He invests the remaining $3,400 elsewhere)
Withdrawals for a home: If he uses the HBP later, he must repay what he withdraws over 15 years; or it gets taxed as income.
Missed opportunity: By not opening an FHSA now, Conner loses access to that contribution room and FHSA-specific perks.

“He gets less contribution room, has to repay withdrawals, and misses out on the flexibility of the FHSA.”

Key Takeaway:

If you're eligible, opening an FHSA early gives you more contribution room than an RRSP at lower income levels, the same tax deduction, no repayment obligations, and keeps your RRSP free to use for retirement.

Once you max out your FHSA, then it's smart to start using your RRSP for even more savings power.

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What Happens to My FHSA if I Don’t Buy a Home?

If you decide not to purchase a qualifying home, your FHSA savings aren’t lost.

Tax-Free Transfer to RRSP or RRIF: You can transfer the full balance of your FHSA (both your contributions and investment growth) into your RRSP or RRIF (Registered Retirement Income Fund) without paying any taxes. This means your savings continue to grow tax-deferred and can be used for your retirement instead.
No Wasted Contribution Room: Even if you don’t use the FHSA for its intended purpose, you’re not penalized. The money you set aside still supports your long-term financial goals.
Important to Note: If you simply withdraw the funds without using them for a qualifying home purchase or without transferring to your RRSP/RRIF, the amount will be treated as a non-qualifying withdrawal; meaning it will be taxed as regular income in the year you take it out.

So, while the FHSA is designed to help first-time buyers, it’s flexible enough to adapt if your plans change.

Can I Combine FHSA and RRSP?

Yes! If you’re a first-time homebuyer, you can use both your FHSA and RRSP to purchase your first home—potentially giving you a bigger down payment.

RRSP Home Buyers’ Plan (HBP): Allows you to withdraw up to $60,000 from your RRSP tax-free to buy or build a qualifying home, but you must repay it over 15 years.
FHSA: Provides up to $40,000 in tax-deductible contributions with no repayment required when used for a qualifying home purchase.

Using both accounts together means you can stack your savings power; getting the most tax advantages and creating more financial room when it’s time to make your first purchase.

Open Your First Home Savings Account (FHSA) Today

If you're eligible for the FHSA, there's really no reason to delay opening one, even if you’re not ready to contribute yet. FHSA does everything RRSP does, plus more, especially if you’re planning to buy a home.

The FHSA is a limited-time opportunity. If you're a first-time homebuyer and qualify, max out your FHSA first. It’s a win-win whether you buy a home or not.

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FHSA vs. RRSP: Frequently Asked Questions

First Home Savings Account (FHSA): Tax-deductible contributions, tax-free growth, tax-free withdrawals for a home.
Registered Retirement Savings Plan (RRSP): Tax-deductible contributions, tax-deferred growth, taxed upon withdrawal unless using the Home Buyers' Plan (HBP).
Yes! If you’re eligible, you can contribute to both accounts. In fact, you can use both the FHSA and RRSP to help fund your first home purchase, maximizing your savings and tax benefits.
If you don’t buy a home, your FHSA savings can be transferred to your RRSP (or RRIF) tax-free. If you withdraw the money for non-qualifying purposes and don't transfer it, it will be taxed as regular income.
Open the account anyway to start accumulating room.
If you’re a first-time homebuyer, prioritize the FHSA first. It offers the same tax deduction as an RRSP but with more flexible, tax-free withdrawal rules. Once your FHSA is maxed out, then adding to your RRSP is a good option.

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