With the launch of the First Home Savings Account (FHSA) in 2023, many Canadians opened accounts to start saving for their first home. How you use an FHSA in 2024 depends on what you did last year. Here are some considerations:

How will my 2024 FHSA contribution room be calculated?
Your contribution room in 2024 depends on your actions in 2023. FHSA rules allow carry-forward up to $8,000 of unused contributions. For instance:

• If you contributed the full $8,000 last year, you have $8,000 of contribution room for 2024.
• If you contributed less than $8,000, your carry-forward is the difference plus $8,000 for 2024.

What is the impact of lost FHSA contribution room?
The impact of lost contribution room on your home purchase goal depends on your home buying timeline. If you plan to purchase a home in the next five years, maximizing your FHSA may be challenging. However, with a 15-year window, you have an opportunity to contribute the maximum $40,000.

What if I overcontribute to my FHSA?
The Government of Canada charges a 1% per month penalty on overcontributions. If you overcontribute, you will need to make a “designated withdrawal” which requires withdrawing an amount equal to the excess contribution.

If the over contributions stem from a transfer from your Registered Retirement Savings Plan (RRSP), you will need to transfer a designated amount back to your RRSP.

In other words, excess funds in an FHSA need to go back to their original source. These transactions are not taxable and are not reported as income.

How are FHSA contributions deducted for tax purposes?
Similar to RRSPs, you can save tax deductions generated by FHSA contributions for future years. This can be beneficial if you expect to be in a higher income tax bracket in the future.

Unlike RRSPs, FHSA contributions made in the first 60 days of the year cannot be deducted against the previous year’s taxable income. If you contribute early in the year, your options are to deduct it against current year’s income or carry forward the deduction to future years.

Funds transferred from your RRSP to your FHSA will not generate a new tax deduction. This is because you already received a tax deduction when you contributed funds to your RRSP.

When can I withdraw funds from my FHSA?
There is no minimum required investment period with the FHSA before you can withdraw the funds.

Speak to your Edward Jones advisor to learn more about how a First Home Savings Account can help you achieve your home purchase goal, and how it fits your overall financial strategy.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Nicolle Lalonde.