By Scott Ronalds

The federal government proposed a budget on Tuesday with some big implications for investors. Notably, the annual contribution limit for Tax-free Savings Accounts (TFSAs) will be increased, and the minimum withdrawal requirements from Registered Retirement Income Funds (RRIFs) will be decreased.

If the proposed legislation receives Royal Assent (i.e. if the budget is passed), the annual TFSA limit will be $10,000 per year (up from $5,500). The new limit will come into effect for the 2015 calendar year, meaning investors will be able to contribute another $4,500 this year if they had already maxed out their contributions prior to the announcement. The new limit will not be indexed to inflation.

The other important change applies to RRIFs, with the initial minimum withdrawal rate lowered to 5.28% (from 7.38%) for investors who are 71 (the age at which an RRSP is required to be converted to a RRIF). Individuals older than 71 will also be subject to lower withdrawal requirements, with the exception of those aged 95 or older. The new limits will allow seniors to keep more of their investments tax sheltered and help reduce the risk of them outliving their savings.

In the opinion of our trustee, it's sensible for investors to wait until the budget is passed before taking advantage of the new rules. We encourage clients to call us at 1-888-888-3147 with any questions about the changes.