As anticipated Tax Free Savings Account (TFSA) limits will rise! Although it wasn’t the 100% increase predicted, annual TFSA limits will be increase by $4,500 per year for a total contribution limit of $10,000 per year for all subsequent years (no longer indexed to inflation). Unlike other saving vehicles, contributions within the TFSA grow tax free and can be taken out at any time without penalty. By doing this the government is forgoing future tax revenue in hopes that Canadians will continue to save for their future. For more info on TFSAs check our TFSA blog.
Another change that was presented in the federal budget has to do with Registered Retirement Income Funds (RRIFs). When Registered Retirement Saving Plan (RRSP) owners reach the age of 71, it is required that they convert their RRSP into a RRIF. RRSPs can also be voluntarily converted to RRIFs prior to age 71. Once the RRSP is converted to a RRIF the law requires that the account holder withdraw a minimum amount, which is subject to income tax. Although many groups lobbied to have this minimum removed completely, the government decided that they would lower it instead. The old rules stated that a 71-year-old would have to withdraw 7.38% of the RRIF per year increasing to 20% by the age of 94. Under the new federal budget the government agreed to reduce the limits to 5.28% at 71 and increasing to 18.79% by age 94. The intent being that RRIFs could last longer for individuals.
Both of these changes are positive and we encourage investors to take advantage of them. If you have any questions about TFSAs, RRIFs or any other investing topic don’t hesitate to contact us at the Tycuda Group. We enjoy watching our investments grow tax free, and want to help you grow yours too!