Seniors stand to benefit as Ottawa makes changes to RRIFs and TFSAs in budget

Tuesday’s federal budget provides seniors and those with a few extra dollars to save with a measure of flexibility in managing their nest eggs. THE CANADIAN PRESS/Jonathan Hayward

Craig Wong, The Canadian Press

OTTAWA - Tuesday’s federal budget provides seniors and those with a few extra dollars to save with a measure of flexibility in managing their nest eggs.

The government increased the annual contribution limits to tax-free savings accounts to $10,000 from $5,500, effective this year.

Seniors will also benefit from changes to registered retirement income funds that will require most of them to withdraw a smaller percentage of their savings from those accounts every year.

“I think generally seniors will be happy with these changes,” Charles Murphy, a tax partner with KPMG, said of the budget.

Murphy noted the current withdrawal formula for RRIF accounts was put in place at a time when interest rates and inflation were higher.

“The RRIFs aren’t growing to the same extent and therefore the requirement to pull amounts at higher rates is reducing the value of those over time and people are living longer and that has an impact,” he said.

The increase in the TFSA contribution limits was promised by the Tories in the last election. As part of the change in the budget, however, the government said the limit will no longer increase with inflation.

The higher annual contribution limit will be of no use to those who don’t already max out their contributions each year, but unused room can be used down the road. The government estimated that 1.9 million individuals had contributed the maximum amount at the end of 2013, with about 46 per cent of them seniors.

“Some are saving money to buy their first home, or to start their first business,” said Finance Minister Joe Oliver.

“Some are saving to put their children through college or university. Others are putting away extra income to make their hard-earned retirement more comfortable and enjoyable.”

However, the Broadbent Institute criticized the increase in contribution limits and suggested that most Canadians already have ample room for their savings needs.

Financial adviser Adrian Mastracci of KCM Wealth Management in Vancouver said the budget is a shot in the arm for those in retirement, but younger investors should look to take advantage too.

“A young family is going to have a lot of pressures on that paycheque, so they may not have all the money for the RRSP, TFSA and stuff like that, so they may have to choose,” he said.

Also included in this year’s budget is a new tax credit for seniors and those with disabilities doing home renovations to increase safety and accessibility in their homes.

The credit is worth up to $1,500 for those spending up to $10,000 on things like wheelchair ramps, walk-in bathtubs and grab bars.

The big ticket items in the budget for families were announced late last year, including the expanded universal child-care benefit, increased child-care expense deduction limits, increased children’s fitness tax credit and the government’s controversial income-splitting plan.

Other changes Tuesday included a new incentive for charitable donations.

Starting next year, the budget calls for a capital gains exemption involving the sale of private shares and real estate when the proceeds are donated to charity.

The penalty for the failure to report income is also being changed so that low-income Canadians are not unfairly penalized and Employment Insurance compassionate care benefits are being extended to six months from six weeks.

In addition to the changes that will affect the wallets of Canadians, the government announced a move to create a new financial consumer protection framework for banks.

The new provisions are expected to include broad requirements for clear and simple disclosure of banking information, prohibitions on high-pressure sales tactics and cooling-off periods for a greater range of banking products.

Ottawa will also work with mortgage lenders to improve the understanding by borrowers of prepayment fees, similar to the voluntary commitment by the country’s banks.

The government is also planning on a national strategy to improve financial literacy.

© The Canadian Press, 2015

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