For individuals aiming to save for their first home purchase, the newly introduced First Home Savings Account (FHSA) offers substantial advantages.
Financial Advisors, Planners, and Investment Managers who use Snap Projections told us that they wanted this new account type built into the software because they want the ability to show their clients the growth of the FHSA as part of the client’s net worth and cashflow reports. Additionally, they want to be able to show the inflows and outflows to this account with the assurance that the software captures the accurate tax implications of withdrawals and contributions to and from the FHSA.
Watch this 5-minute summary video of the new FHSA in Snap.
Based on feedback from our current user base, we expect this new feature to be used by almost everyone, but at a much higher frequency by those Financial Advisors who serve a younger client base. Here are 5 additional ideas to get young professionals engaged with financial planning.
As young Canadians continue to feel the pinch in all areas of life, the demand for financial planning continues to grow. This new savings medium has the potential to help young Canadians to turn their dreams of home ownership into a reality, but it’s going to be up to Financial Advisors and Planners to educate their clients to ensure they understand the benefits and how to best leverage this opportunity. Now that the account is available in Snap, Advisors can model in real-time for their clients the personalized impact of utilizing this account when a client is saving for their first home.
What is the First Home Savings Account (FHSA)?
The First Home Savings Account (FHSA) came into affect in April 2023 to assist first-time homebuyers in Canada. It can be combined with other government initiatives such as the Home Buyers’ Plan, First Time Home Buyer Incentive, and Home Buyers’ Tax Credit. The FHSA comes with an annual contribution cap of $8,000, reaching a lifetime maximum of $40,000, and remains active for 15 years. Any cash and investments housed within an FHSA have the potential to grow tax-free, and qualified withdrawals from the account incur no tax.
You can learn more about the First Home Savings Account (FHSA) here.
Here are 10 ways Financial Advisors & Planners can educate their clients and start a dialogue on the benefits of the new tax-free First Home Savings Account (FHSA).
- Understand client goals: Begin by understanding the client’s financial goals, especially those related to homeownership. Knowing the client’s aspirations and timeframe for purchasing a home will help tailor the discussion to their specific needs.
- Detailed explanation: Provide a thorough explanation of the FHSA, detailing its features, eligibility criteria, and benefits. Clearly outline how contributions and withdrawals work, the annual and lifetime limits, and the tax implications.
- Illustrate tax advantages: Use concrete examples and scenarios to illustrate the tax advantages of the FHSA. Show how contributions can grow tax-free and emphasize the significance of tax-free withdrawals when used for qualifying home-related expenses. This new account can now become part of the overall tax planning conversation.
- Compare with other options: Compare the FHSA with other savings or investment options available to the client. Highlight the unique tax treatment of the FHSA and demonstrate how it may offer superior benefits compared to traditional savings accounts or other investment vehicles.
- Integration with other programs: Explain how the FHSA can complement other government programs, such as the Home Buyers’ Plan, First Time Home Buyer Incentive, and Home Buyers’ Tax Credit. Showcase how leveraging these programs together can optimize the overall financial strategy.
- Risk and return considerations: Discuss the various investment options available within the FHSA and help clients understand the associated risks and potential returns. Tailor the investment strategy based on the client’s risk tolerance and financial objectives.
- Long-term planning: Emphasize the long-term benefits of using an FHSA, especially for clients with extended timelines before purchasing their first home. Illustrate how the tax-free growth over the years can significantly contribute to their down payment.
- Regular updates and reviews: Commit to providing regular updates and reviews of the FHSA as part of the overall financial planning process. Ensure that the FHSA aligns with any changes in the client’s financial situation or goals.
- Address questions and concerns: Encourage clients to ask questions and address any concerns they may have. Clear communication and addressing client queries will enhance their understanding and confidence in utilizing the FHSA.
- Educational materials: Provide educational materials, such as brochures, articles, or interactive tools, that clients can refer to for additional information on the FHSA. This can serve as a valuable resource for ongoing learning.