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Changes To RRIF Rules Proposed

The federal government has proposed a reduction in the minimum withdrawal rules for registered retirement income funds (RRIFs) to permit seniors to preserve more of their retirement savings and help reduce the risk that they will outlive their savings. As well, it plans to double the maximum annual contribution for tax-free savings accounts (TFSA) to $10,000.

The budget proposes to adjust the factors that are used to calculate minimum withdrawal requirements to better reflect more recent long-term historical real rates of return and expected inflation. The existing RRIF factors have been in place since 1992. Under the proposed changes, a senior would be required to withdraw 5.28 per cent of his or her RRIF at age 71, down from 7.38 per cent today.

At age 94, a senior would be required to withdraw 18.79 per cent, down from 20 per cent currently. At age 95 and above, the percentage that seniors are required to withdraw annually would remain capped at 20 per cent. There will be no change to the minimum withdrawal factors that apply in respect of ages 70 and under, which will continue to be determined by the formula 1/(90 – age). These factors will permit close to 50 per cent more capital to be preserved to age 90 compared with the existing factors. The proposed TFSA contribution level change is consistent with the Conservative Party’s promise in the 2011 federal election campaign to double the contribution amount. At that time, the contribution limit was $5,000.

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