Canadian Personal Finance Blog

I’ll stay away from the rest of the budget (don’t want to sound too much like a whiny Civil Servant (who said, Too Late!)), but there are changes to the RDSP program which is important to me and any other parents who have disabled children and those with disabled loved ones.

From this web site, the changes are:

The budget proposes the following changes that will increase the effectiveness of RDSPs:

• Simplifying the process to open RDSPs for individuals who have reached the age of majority and lack contractual competence;
• Reducing the repayment of Canada disability savings grants and Canada disability savings bonds in certain cases;
• Introducing changes to the minimum and maximum withdrawal rules;
• Allowing a tax-free rollover of registered education savings plan investment income into an RDSP;
• Temporarily suspending the termination of an RDSP following cessation of eligibility for the disability tax credit if the beneficiary may qualify for the DTC again in the foreseeable future; and
• Reducing the burden associated with administrative requirements.

The last point is good, because as I have said, setting up an RDSP with TD/Waterhouse really was a complicated issue.

A lot of these changes are designed to get more institutions to offer an RDSP to their customers (it is not available everywhere), but also make it swifter in implementing as well.

The ability to transfer the proceeds of an RESP into an RDSP is a good idea. If you have a child that becomes disabled, or is diagnosed later in life, the ability to take the funds that you had been saving for post-secondary education into a lifetime savings program for the child, just seems to make sense to me.

The temporarily suspending the termination of an RDSP is interesting as well, in case you have a disabled person whose cure” is mis-diagnosed, or they were unable to get their disability “reconfirmed” in a timely fashion, there is not a sudden closure of their RDSP, again, this seems to make sense to me.

The RDSP still seems to be a bit of a mystery to a lot of folks, but if you have a disabled loved one, I would strongly advise you to go find out more about the program. If there is money to be had from the government to help later in life, you should be trying to get that money as soon as you can.

Given that November is over half done, and American Thanksgiving (with it’s forbidden Deep Fried Turkeys and Sublime Football games) is on the horizon, maybe it is time to start thinking about the fact that 2011 is pretty much upon us.

Some may say, Big Deal BCM how does this effect me?.

That is a very good question, a little naive for one of my readers, but still a good question. A New Year about to start, there is the coincidental issue of a year ending, in this case a fiscal year. Some things it might be good to think about:

• Have you made a full payment to your TFSA this year yet? If not, best get that done soon, as I don’t think that Sunday Banking will happen until the new year.
• Have you opened a TFSA yet? If you do it now, you have this year’s limit and then next year as well, so you should be able to put $10000 in there, shouldn’t you? I am open to statements that this is correct, and as usual you should check with the proper authorities to make sure you can do this. Maybe open a TFSA for any of your kids that are over 18?
• Do you give to Charities? If so, remember the end of year for those payments are December 31st, so you’d best get your money in soon to those folks as well.
• Do you have a financial plan set up or goals for 2011? Now might be the time to start compiling this list, so you don’t feel rushed and you have time to think about what the new year might bring.
• Do your kids have RESPs? Might be a good time to put money in as well, especially if they get money from their Grandparents or Uncles. The RESP “calendar” is a little funny, I think it’s in Quarters, but I am not sure on that one either.
• Not sure but if you had an RDSP for a loved one that might be good to top up before the end of the year.
• Might want to mark on your calendar important dates that might be happening this coming year like:
  • Mortgage renewal date
  • Insurance renewal date
  • Car Licensing dates
  • etc., etc., etc.,
• Might be a good idea to buy a Calendar for 2011 as well!

I am sure there are many other interesting topics that I may have missed, so please comment away so I can make sure my list is complete.

Finally Done first phase

For a while I have been writing about my on going journey for setting up an RDSP for my son, with TD Waterhouse. It has been a long journey, where I have learned a great deal about my ability to deal with complicated government and banking systems (I have more patience than I thought), and I hopefully am helping folks who might be thinking about using this savings vehicle for a disabled loved one (or for themselves).

Yesterday I finally got up the nerve to attempt to actually move the cash that we have placed into the account, so any delay for now has been me procrastinating (for full disclosure).

A while ago, the government did kick in a 50% Grant on top of the money we had placed into the account. This happened about 1.5 months ago, so the money has been sitting as cash since then in the account (and thus accumulating effectively no interest).

My decision for investing the money was to take a passive fairly mundane approach for investing this money (not a large amount of money, but hopefully something that will have a chance to grow over time). The investment vehicles used were:

• 1/3 of the funds into TD Canadian Index - eTDB900 which tracks the performance of the S&P/TSX Composite Total Return Index (S&P/TSX Composite Index).
• 1/3 of the funds into TD Dow Jones Industrial Avg Index - eTDB903 which tracks the performance of the Dow Jones Industrial Average Total Return. (but is in Canadian Funds).
• 1/3 of the funds into TD Canadian Bond Index - eTDB909 tracking the performance of the Scotia Capital Universe Bond Index (SC Universe Bond Index)

These are my interpretation of the Canadian Capitalists Sleepy Portfolio, and I can pretty much leave the money here and occasionally check in on it’s performance, since this is a very long term investment. I can also add more money to this over time, and possibly tweak the percentages for each investment vehicle (given there is no international flavor to this investment group).

To do this, I had to use the TD Waterhouse Phoneline interface (no for some reason or rule I am not allowed to do any trading on this account, with TD’s on line system). The entire phone call took a while, as I had to remember how the system worked, and then the nice young lady I spoke to didn’t know what the Index Funds were and whether I could purchase them in the RDSP (yes, when she said that my stress level went up 300%), however, it turns out all was well and the actual purchases were straight forward.

Thus Endeth This Round

With these transactions, I have completed round 1 of the RDSP game. I have set up the account, put money in it, and moved that money into some savings vehicles. The next step or round of the game will be to add money to the account (again, remembering I cannot simply go on line and transfer money into the account, I must do this all by phone), and then balance the investments in the account.

RDSP Background

For those who have not been reading along with my saga, I include links to my previous posts to help you understand the steps you need to take when setting up an RDSP:

• Registered Disability Savings Plan an introduction to the program.
• New Financial Programs are Never Easy I outline the steps we took to actually set up the account with TD
• No You Are Not Married to Him outlines the issues we ran into with my wife’s identity that got tripped by applying for the program
• RDSP the Journey Continues continues the saga of attempting to put money into the RDSP.
• RDSP The Journey Continued is me ranting about how long it took to actually transfer money to the account (while watching the Monaco Grand Prix).
• RDSP: The Other New Government Savings Plan which is a guest post written as an overview of the program as well.

I supply these for those who need or want more info on this program and the lessons I have learned from my interactions with the Banking System.

Editor’s Note: This is a rare guest posting on my site about a subject near to my heart the RDSP. It is an interesting post, and if you wish to contact the author he has left his e-mail contact info at the bottom of this post. I have an RDSP open for my son, with TD (just for disclosure sake) and this is an uncompensated (by me) guest post.

The Registed Disability Savings Plan

In recent years the Federal Government has introduced two new registered savings plans.  There has been a lot of talk and interest for the TFSA which was introduced in the 2008 federal budget, however the plan introduced in the 2007 budget has received much less fanfare despite the fact that, for those who qualify, it is a far superior long term savings plan featuring a very generous grant and bond program.  If you have or if you know anybody who has a disability you need to be aware of the RDSP (Registered Disability Savings Plan).  It is estimated that approximately 500,000 Canadians are eligible to open a RDSP yet the last estimates I heard were around 40,000 plans have been opened.  To be eligible the beneficiary must qualify for the Disability Tax Credit.

The RDSP is modeled after the fairly well know RESP, but the grants and bonds available can reach up to $90,000, far more then what is available in a RESP.  As with the RESP the funds contributed to the plan are not tax deductible, but the income earned in the plan is sheltered from taxes as long as they remain in the plan.  If the beneficiary of the plan is at least 18 years old the withdrawals of the income and government contributions will be taxed in their hands.  Eligibility for grants and bonds is based on net family income, when the beneficiary is under 18 then it is the combined income of the parents or primary care givers.  When the beneficiary is 18 and over it is based on the combined income of themselves and their spouse.  Even if the beneficiary is an adult dependent who is unable to work it will still be their net income used.

When the government is determine eligibility for grants and bonds they will be looking at the income on tax returns from two years previous.  For example if you make a contribution in 2010 then they will view the completed 2008 tax returns to determine income levels for grant and bond eligibility.

Canadian Disability Savings Grant (CDSG)

If income is $78,130 or less then:

• 300% grant on first $500 in contributions or $1500
• 200% grant on next $1000 in contributions or $2000

If income is more than $78,130 then:

• 100% grant on first $1000 in contributions or $1000

Canadian Disability Savings Bond (CDSB)

If income is $21,947 then a $1000 bond is paid with any contribution required.

The bond is then reduced the higher net income goes reaching $0 with a net income of $39,066.

Both the CDSG and CDSB can be paid for a maximum of 20 years to a maximum age of 49.  There are annual contribution limits, but there is a lifetime contribution limit of $200,000.

There are no restrictions on when money can be withdrawn from the plan as long as it is for the benefit of the beneficiary.  However, the RDSP was designed to encourage long term savings towards the beneficiaries future needs.  As such the government will claw back any grants and bonds if funds are withdrawn within ten years.  To take full advantage of the grants and bonds one would need to make contributions for 20 years, and then not make any withdrawals for ten years after the last grant or bond was received, so a 30 year time frame is ideal.

It is also important to note that the Federal government has completely exempted the assets and income from RDSPs for consideration of other government benefits.  Most provinces have follow the federal governments lead and fully exempted RDSP assets and income for determining provincial benefits, however Quebec, New Brunswick and PEI have only made partial exemptions and Nunavut has yet to make a decision.

The Plan is still not widely available.  The five big banks, RBC, TD, BMO CIBC and Scotiabank do all offer the plan.  The only other company, Les Fonds d’investissement FMOQ inc. is only availible in Quebec.  RBC is the perferred RDSP provided of PLAN, the organization who lobbied to get this plan in place.  TD Waterhouse is the only current self directed option where you will have access to a large range of investemnt options and not just limited to the banks own mutual funds.

Please let anyone you know who may benefit from a RDSP know about it, about 80% of those who can open the plan have yet to do so, the most common reason is that they are not aware of it.  Even if no contribution can be made, contributions could be made through the CDSB.  The RDSP should be a key part of a financial plan for any family who has a member with a disability.  For more information on the program, including a RDSP calculator, you can visit PLAN.

Ryan Rohloff FMA, FCSI

Atlas Financial Planning

So one of the credos of Personal Finance that most experts agree on is you should Pay Yourself First , however, what that means to each of the experts is always a little different.

My big thing about the concept of Pay Yourself First is, make sure you are paying all your bills as well. What I mean, is that if you are building up your savings, while continuing to build up your debt load, so whatever I say this week, remember that my version of Pay Yourself First is assuming you are paying your bills and your debt as well!

With this in mind here is a list of the major ways you can (and should) pay yourself first (or more precisely what savings vehicle you should put your savings money in):

• Pay off your debt! You want to pay yourself, decrease your debt and the money you save on Interest is going to pay you, so keep this in mind. Yes, I know I sound repetitive, but it’s important.
• Put Money in your RRSP (or 401k). This is a great place to pay yourself because, you are saving tax money while saving money. You can do this a lot of ways, and I’ll talk about this later in the week. The drawback is if you need the money before you retire, there are a bunch of drawbacks, but even if you save the tax money you save somewhere else you are ahead of the game (like say paying off your debt).
• Put Money in your TFSA, another good place to save your extra money or your savings, because the money grows tax free, and it comes out of it Tax Free (now remember there are limits and rules that you need to be up to date on, so please read up on this vehicle).
• Put Money in your kids’ RESP, if you don’t have kids, don’t worry about this one, but if you have kids, when they are young is when you should use this savings vehicle. The government wants to subsidize your savings for your kids post secondary education, you should take advantage of this.
• Put Money in your loved ones RDSP, if you don’t have a disabled love one, don’t worry about it, but if you do have someone you care for that is disabled, think about this program to help with their security. I have written about this before, and will continue talking about this program as it becomes more clear to me.
• Take all your Tax Deductions, it amazes how many people who do not take advantage of the tax breaks that are available to them, such as:
  • Active child tax credit, if your kids are playing sports and is younger than 16, you need to take advantage of this program.
  • Mass transit tax credit, if you take the bus, or your kids do, why wouldn’t you use this tax credit?
  • Child Care credit, if your kids are in daycare, why wouldn’t you write this off?
  • Medical expenses, are you claiming these? If you don’t have a health plan, or it doesn’t pay for all your medical, look into this.
• Don’t wait until April to get your tax credit, if you are taking advantage of these tax credits and breaks, make sure you get paid up front, don’t let the government hold your money all year and then give it back to you at the end of the year, Pay Yourself Now!

I’ll write some more about this topic, but remember you need to pay yourself first.