With a federal election on the horizon in 2015, the Conservatives released their much-anticipated federal budget. The government is sticking to its steady-as-she-goes approach. However, there are some goodies mixed in the government’s austerity budget. Savers and baby boomers both have cause for celebration with the doubling of the TFSA Website contribution limit and lowering of RRIF withdrawal minimums.
As promised, the Conservatives achieved a balanced budget… well, sort of. Although the Conservatives balanced the books, they had to tap into the contingency fund to do it. The contingency fund is money set aside for unforeseen circumstances like natural disasters. The Tories budget remaining balanced depends a lot of how the Canadian economy performs going forward. If growth projections end up being slightly too rosy, we could be in deficit again as soon as next year.
Doubling of TFSA Contribution Limit
As had been rumoured for months, the federal government doubled the TFSA contribution limit. Effective immediately, the annual contribution limit for the TFSA nearly doubles to $10,000 from $5,500. For those who have already made their $5,500 contribution in 2015, you can contribute an extra $4,500.
Although the budget has been painted as a rich person’s budget, the doubling of the TFSA contribution limit is good news for anyone saving towards a short-term or long-term goal. Unlike the RRSP, which is mainly for saving towards retirement, saving for the down payment on your first home and going back to school, the TFSA offers a lot more flexibility.
With the TFSA you can save towards a variety of goals, including a down payment, family vacation, car and more. While the Home Buyers’ Plan is great for first-time homebuyers with RRSPs, if you’re not a first-time homebuyer, the TFSA offers a tax-sheltered way to grow your money if you’re thinking of upsizing your home. $10,000 of contribution rooms means both your spouse and you can save up to $20,000 per year towards the down payment on your next home.
RRIF Withdrawal Minimums Relaxed
Although RRSPs are the preferred way to save towards retirement, the outdated RRIF withdrawal minimums were a thorn on the side of retirees for years. Under the current RRIF rules which came into place in 1992, retirees who chose to convert their RRSP to a RRIF were forced to withdraw 7.38 percent on their retirement nest in the following year after turning age 71. Those minimum withdrawals only got higher as retirees aged.
Under the new rules, the RRIF withdrawal minimums have been relaxed. Now retirees are only forced to withdraw 5.28 percent of their retirement savings. The change in RRIF withdrawal minimums make sense in the current low interest rate environment. Under the old rules, retirees faced longevity risk – the risk of outliving their money. Under the new rules, retirees can feel at ease, knowing they aren’t forced to eat into their capital too early.