Retirement income boost

The 2015 federal budget contained a couple of measures that can give Canadians greater flexibility in their retirement saving and investing - an increase in the annual Tax-Free Savings Account (TFSA) contribution limit and a reduction in minimum annual payments from Registered Retirement Income Funds (RRIFs).


Increase in TFSA contribution limit

As of January 1, 2015, the annual TFSA contribution limit was raised to $10,000 from the previous limit of $5,500. The extra $4,500 in annual contribution room offers a significant tax-efficient and very flexible opportunity to save for your retirement. You can take retirement income from a TFSA without impacting your right to receive such social assistance tax benefits as Old Age Security, the Guaranteed Income Supplement and the age credit. As well, because the withdrawal rates for RRIFs have decreased, taking retirement income first from your TFSA may allow you to leave investments in your RRIF longer. This is a benefit because RRIF withdrawals are 100% taxable so it’s usually better to leave those funds inside your RRIF as long as possible.

TFSAs are also more flexible than Registered Retirement Savings Plans (RRSPs) because there’s no maximum age by which you must start to make minimum withdrawals. And, unlike an RRSP, you can continue to make contributions to investments held in a TFSA after you turn age 71.


Decrease in minimum RRIF withdrawals

Previously, a 71-year-old with a RRIF was required to withdraw 7.38% of their RRIF in the first year, escalating to 20% by age 94. Now, the withdrawal rate has decreased to 5.28% in the first year, and 18.79% by age 94. This is an opportunity to preserve more of your wealth over your retirement years. As well, RRIF owners who withdraw more than the new minimum amount in 2015 will be able to re-contribute to their RRIF up to the reduction in the RRIF minimum withdrawal amount when the contribution is made on or before February 29, 2016 and will be deductible for the 2015 taxation year.


What’s best for you?

Should you take advantage of the extra TFSA contribution room and the decrease in minimum RRIF withdrawals (along with the flexibility to re-contribute to both) as strategies for decreasing your tax bite – or are other retirement income options (such as increasing contributions to your RRSP) better for you? You’ll know when these strategies are weighed within an overall financial/retirement plan – so talk to your professional advisor soon.


This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.

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About the Author

As a Regional Director at Investors Group it is my mission to grow the Okanagan Region of Investors Group. I help recruit, train and develop Consultants at Investors Group. I am always looking for professionals that would like to be their own boss and enjoy the training, support, rewards and compensation for being a successful Consultant. Also ensuring that we continue to be involved in the community in which we live.

As a Financial Consultant it is my passion to serve clients by giving them full financial planning advice. This includes investments, insurance, retirement & estate planning and tax reduction strategies.

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Contact Karen by email at:  [email protected]


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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