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Assuming I need 35K for a downpayment and I have 50K in an RRSP 50k in a TFSA and 20k in a non-registered account— which account is it best to draw from? My assumption is that cleaning out the non-registered account first would be best since it isn’t tax advantaged, but what account should be used for the remainder? My guess is the RRSP is best since the advantage of this one is the tax write off when you make the contribution, which I’d have already received— and the TFSA is more multifunctional, and easy to access if needed in the future.

All funds are in all accounts are in total market index funds, and I have no concerns about my ability to repay the RRSP withdrawal over the 15 year period identified under the first time home buyer’s plan.

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  • I'm not familiar with Canada, but if there is a tax advantage for contributions, there is usually a corresponding disadvantage for non-qualifying withdrawals. You almost certainly have to pay whatever taxes you saved initially, plus an additional possible penalty if you are withdrawing the funds early or for some purpose other than the stated goal of the RRSP.
    – chepner
    Jul 17, 2022 at 17:52
  • The RRSP has a special condition where you can withdraw up to 35K for the purchase of your first home tax free. The 35K must be repaid over the next 15 years
    – Dugan
    Jul 17, 2022 at 18:10

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In general you want to take the money from the fund that is paying you least, after tax.

This will be the unregistered account at first, because you will be paying tax on any returns from that account. In your case the unregistered account won't cover the down payment so some will have to come from one of the other accounts.

In general you shouldn't take money from your RRSP, because you will pay tax on the withdrawal and also because you can't put money back in an RRSP once it is withdrawn. However there is a special rule for RRSPs where you can essentially borrow up to $35k from them to put towards a house purchase if this is your first house. If you do that then you pay no tax on the withdrawal and can (in fact must) put the money back without penalties. You should take advantage of this if you can, taking the money out of the RRSP by this means rather than the TFSA. This leaves more of your money in the TFSA which has the same tax protection as the RRSP but is more flexible if you find you need some money for another reason later.

If that is still not enough then withdraw from the TFSA to avoid the tax penalty on RRSP withdrawals. Only take money out of your RRSP by normal withdrawal if you have absolutely no other alternative.

You might be advised to look at the actual rate of returns so that you don't sell a high return investment from the unregistered account when you have a very low return one in the TFSA or RRSP. But if you find you have that the best approach is to swap the high return assets into the tax free accounts.

TLDR

  1. Unregistered account
  2. RRSP home loan
  3. TFSA
  4. RRSP (only if you have absolutely no choice)

If you have a financial advisor they can explain this in more detail.

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