Is it a good idea to open CELIAPP to increase your contribution rights?

Is opening CELIAPP sooner rather than later always a winning strategy?

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A Tax-Free Savings Account for First Property Purchase (CELIAPP) is highly recommended by many financial advisors, as it combines the benefits of both a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). That's it.

Unlike a TFSA, where the maximum contribution each individual can make to their account has been added since 2009, the maximum contribution to CELIAPP begins to be credited upon account opening.

The maximum contribution to CELIAPP is $8,000 per year, up to $40,000 for life.

It is tempting to open a CELIAPP account to maximize your contribution rights.

Unlike a TFSA, CELIAPP contribution rights do not necessarily compound annually.

In fact, we read on Épargne Placements Québec's website that “unused contribution rights in a given year can be carried over to the next year up to $8,000”.

For example, in the year your account is opened, if you don't contribute to your CELIAPP, you can contribute $16,000 the next year, which is $8,000 of unused contribution rights and $8,000 of rights contribution for this year.

Similarly, if you put $3,000 into your CELIAPP the first year, you'll have $5,000 of unused contribution room the following year and can contribute up to $13,000.

However, if you do not contribute to your CELIAPP account for two consecutive years, your entitlements will not increase to $24,000 in the third year, but to $16,000, which is still 8,000 unused contribution rights and $8,000 contribution rights this year.

Unlike a TFSA account, CELIAPP has an expiration date: the account is closed 15 years after it was originally opened.

The accumulated money can be transferred to an RRSP or EFER. Funds can also be withdrawn. However, these are added to your annual income, so you need to anticipate the tax implications.

Opening a CELIAPP account can provide a definite benefit even if you don't plan to contribute to it in the same year, as you increase your maximum contribution for the second year of opening.

However, you should consider the account expiry date. By opening a CELIAPP account early and not being able to contribute to it, you reduce the number of years you can benefit from the benefits the account offers.