First home savings account: Here’s how you can use it alongside your TFSA, RRSP

The FHSA has arrived. If you're saving up to buy a home and are not sure where the FHSA fits in with the TFSA and RRSP, here's what you need to know.

The First Home Savings Account (FHSA), a registered savings vehicle introduced by the Liberal government to help Canadians struggling to enter the housing market save toward a downpayment, is now available at some financial institutions.

Originally a pledge as part of the 2022 federal budget, the FHSA went live on April 1, but most banks told Global News they weren’t ready on day one.

Institutions including RBC, National Bank and Questrade are among those who have since launched the offering this month. Others, including TD Bank and Desjardins, have targeted a summer launch for their FHSAs.

So what is the FHSA, and how can you use it alongside other registered savings accounts to reduce your taxable income and save towards your first home?

Here’s what you need to know.

The FHSA allows individuals to save up to $8,000 per year in a tax-free account, with a maximum contribution room of $40,000. Unused contribution room will roll over to the next year as well, but the amount you can carry over from previous years is capped at $8,000.

Your money is tax-free on the way in and on the way out, which means that any contributions you make will be deducted from your income for tax purposes that year, and anything you take out will also be tax exempt.

This money in this account must be put towards a downpayment for a home. However, if you start saving and decide not to buy a home with the money in the account, it can be transferred tax-free to a Registered Retirement Savings Plan (RRSP) without counting against your contribution limits for that account.