Seniors are already benefiting from important money-saving measures such as pension income splitting. And now with EAP 2015, they will have even more money to put in their pockets with two new measures:
- Changes to the Registered Retirement Income Fund (RRIF) minimum withdrawal requirements that will allow them to defer tax on more of their savings.
- A new tax credit that will recognize costs of renovations that help seniors and persons with disabilities live independently and remain in their homes.
A Registered Retirement Savings Plan (RRSP) must be converted to a RRIF by the end of the year in which the RRSP holder reaches 71 years of age, and a minimum amount must be withdrawn from the RRIF annually beginning the year after it is established. Alternatively, RRSP savings can be used to purchase an annuity.
How RRIF Holders Will Benefit
Helen turned 71 in 2014 and converted her RRSP to a RRIF at the end of that year. At the beginning of 2015, Helen’s RRIF assets amounted to $100,000. Under the existing RRIF factors, Helen would have been required to withdraw a minimum amount of $7,380 from her RRIF in 2015. Under the new RRIF factors, the minimum amount Helen is required to withdraw from her RRIF in 2015 is reduced to $5,280.
Raymond was 75 at the start of 2015, at which time his RRIF assets amounted to $250,000. Under the existing RRIF factors, Raymond would have been required to withdraw a minimum amount of $19,625 from his RRIF in 2015. Under the new RRIF factors, the minimum amount Raymond is required to withdraw from his RRIF in 2015 is reduced to $14,550.
Similarly, the new RRIF factors will reduce the percentage of RRIF assets that Helen and Raymond are required to withdraw in subsequent years, until after they turn 95. By reducing their RRIF withdrawals, Helen and Raymond can retain more assets in their RRIFs—assets that will continue to accumulate on a tax-deferred basis to support their future retirement income needs should they live to an advanced age. In addition, if Helen and Raymond do not need their minimum RRIF withdrawal for income purposes, they can save the after-tax amount for future needs—for example, in a TFSA if they have available TFSA contribution room.
To determine the required minimum RRIF withdrawal, a percentage factor corresponding to the RRIF holder’s age is applied to the value of the RRIF assets. RRIF holders can also base minimum withdrawals on the age of a spouse or common-law partner when the RRIF is established.
EAP 2015 proposes to adjust the RRIF minimum withdrawal factors that apply in respect of ages 71 to 94 to better reflect more recent long-term historical real rates of return and expected inflation. As a result, the new factors will be substantially lower than the existing ones.
The new factors will allow for greater preservation of RRIF capital to older ages, thereby reducing the risk for seniors of outliving their savings.