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. Note also this was originally written in 2010, so things may have changed since then!
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 than 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 or less, 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 available in Quebec. RBC is the preferred 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 investment options and not just limited to the banks own mutual funds.
What Can You Do?
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