Ottawa is proposing to increase the conversion age for RRSPs, RPPs and deferred profit-sharing plans to 71 from 69.

Changes in the 2007 budget would affect the 2007 and subsequent calendar years. This reverses a change made in the 1996 federal budget, which lowered the conversion age limit from 71 to 69.

The extra two contribution years will allow clients to contribute a maximum of $19,000 in 2007 and $20,000 in 2008 –which could result in more business for advisors.

“While it will involve a certain amount of administrative burden, these changes will be welcomed by advisors and their clients, as it will permit elligible seniors to continue to save on a tax-deferred basis for their retirement,” says Jamie Golombek, vice president of taxation and estate planning at AIM Funds Management Inc. of Toronto.

The measure will benefit individuals who turn 69 in 2007, when no further contributions or benefit accruals would have been permitted under such plans, and the benefits transferred to a registered retirement income fund, or used to buy a qualifying annuity.
The measure will also benefit individuals who turn 70 or 71 years of age in 2007. If contribution room is available, RRSP contributions will be permitted in 2007 and 2008 for 70-year olds, and in 2007 for 71-year olds.

In addition, the requirement for a specified minimum amount to be withdrawn from a RRIF will be waived for 2007 and 2008 in the case of RRIF annuitants who turn 70 in 2007, and for 2007 for RRIF annuitants who turn 71 2007.

Notably, a RRIF annuitant who is 71 or younger at the end of 2007 will be able to reconvert the RRIF to an RRSP, as long as the re-established RRSP is converted to a RRIF before the end of the taxation year in which the individual turns 71.

Existing registered plan annuities can be amended without adverse tax consequences. As well, employers will be allowed to amend their RPPs to allow continued benefits and contributions for employee-plan members who are 71 or younger at the end of 2007.