Learn how this year’s budget could have a major impact on both your current savings and retirement income

In its 2015 federal budget, the Canadian government proposed changes that could affect your investments. The first change was an increase to the Tax-Free Savings Account (TFSA) annual contribution limit. The second was a decrease in the amount of money retirees must withdraw from their Registered Retirement Income Fund (RRIF) in most years. Here’s a quick summary.

TFSA contribution limits are up…
Until the 2015 federal budget was released, Canadians could contribute up to $5,500 per year to their TFSA. You can now contribute a maximum of $10,000 per year, which is a significant increase.

Let’s look at how this could affect your investment earnings.

If you contribute the maximum $10,000 per year for each of the next 10 years, at a 5.5% annual rate of return, your investment could grow to $135,834. If you did the exact same thing under the old contribution limit of $5,500 per year, at the same rate of return, your savings would have grown to $74,709.

So, at a fairly modest rate of return, the new limit means a potential 82% increase in investment earnings. And those investment earnings grow tax-free.

… while RRIF withdrawal amounts are down
On the other side of the coin, retirees between the ages of 71 and 94 can now choose to withdraw less from their RRIFs each year.

Before the 2015 budget was released, RRIF withdrawal minimums ranged from 7.38% of plan assets at age 71 to 20% of plan assets at age 94 and older.

With the proposed changes, the minimum withdrawal amounts range from 5.28% at age 71 to 18.79% at age 94. Retirees aged 95 and over have the same minimum withdrawal amount of 20%. For a full list of the new percentages at each age, visit the Government of Canada website.

The minimum withdrawal amount also stayed the same for anyone under 71, and continues to be determined by this formula:

Market value of your RRIF / (90 – your current age)

For example, if you’re 68 and the market value of your RRIF is $150,000, your minimum withdrawal amount is $6,818, just as it would have been before the budget announcement.

Remember that all of the amounts we’ve talked about here are minimum RRIF withdrawal amounts. There’s no maximum withdrawal amount, so you can choose to withdraw more money in any particular year if needed.

Have questions about your TFSA or RRIF? Call our office today.