Why an RESP for a Disabled Child ?

I have set up an RESP for my son. For those who don’t remember my son is on the Autism Spectrum, so why would I not put money into this RDSP, instead of an RESP? There are a few reasons for an RESP for a disabled child.

RESP for a disabled child
There can be many reasons that an RESP is still a viable savings plan for parents of disabled children, and here are a few to consider.

Child Can Attend Post-Secondary Programs

If your child is not mentally disabled, or can cope with a post-secondary program, then an RESP is a good way to plan for their post-secondary education. In our case my son may be able to go to College, University or other training programs. Having an RESP is simply a good plan for his future.

CESG Can Pay Well

As my son’s RDSP Disability Savings Bond is calculated against my family income, currently the DSB payment is quite low. When my son reaches his 18th birthday the DSB will be calculated against his income, so the pay out for money deposited into his RDSP will be higher.

While the CESG portion of the RESP is also calculated based on my family income, it still pays well. I get 20% pay back up to $2500, so $500 every year is pretty good payback for an investment.

RESP Can Be Rolled into RDSP

There is a way to transfer money from an unused RESP to an RDSP. Is this the best thing to do with the RESP if it is unused is an open question. My RDSP expert said it would be better to collapse the RESP, pay back all grants and pay tax on any growth, and then add the remaining moneys into an RDSP. I will investigate that concept some more as my son gets closer to University age.

Your Situation May Vary

Depending on the situation, what is working for me (in my opinion), may not work as well for your family. I would do the research and look at the arithmetic about whether it is worthwhile setting up both an RDSP and an RESP for your disabled child. If you can only afford 1 savings plan, make sure the RDSP is dealt with first. If your income is low, remember the Canada Learning Bond might be available to your kid’s RESP, and that pays if you put in minimal amounts.

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RDSP Statement of Grant Entitlement

Who knew that this time of year had so many financial events? You have the RRSP deadline, tax preparation time and for some another important event. At the beginning of February I receive the Annual RDSP Statement of Grant Entitlement from my son’s RDSP.

What is the RDSP Statement of Grant Entitlement ? It is the yearly statement from the Government that states the maximum grant available for the year and the amount I need to deposit in my son’s account to receive the grant.

If you receive this you will see the following box that explains all things in terms of contributions and grants.

RDSP Statement of Grant Entitlement

RDSP Statement of Grant Entitlement for my Son

From this simple table we can deduce so much information about the RDSP grant program.

  • My son is receiving the minimum grant for this year of $1000. This is due to my family income being at the top of their scale (but not that high in my scale). In the future it will be based on my son’s income (after he turns 18). If the Max Grant available was $0 (Zero) it would usually mean the holder is no longer eligible for grants.
  • The maximum grant he could receive this year would be $10,500, which might be possible after his income is the trigger for grants.
  • We need only contribute $1000 to my son’s RDSP to receive the $1000 grant (thus a 100% grant).

The income level that the grant is based on uses the previous years CRA submission.  My son’s income level won’t be used until he turns 19, but then his grant potential will increase notably.

What isn’t mentioned is the the limit of $70,000 in grants over the lifetime of the RDSP holder. This suggests (for me) a strategy of waiting until my son turns 19 before making large additions to the RDSP. This strategy should allow him to receive the maximum grant level.

Also not mentioned is Grants are paid into the RDSP until the end of the year my son turns 49 years of age.

The maximum contributions for the lifetime of the RDSP is $200,000 overall contribution.

Finally the Canada Disability Savings Bond is also not mentioned, because of my family income. For those with lower incomes, this is a reason to open an RDSP even if you don’t have much money to put into it.

Remember my son’s RDSP is currently being held in a TD Direct Investment RDSP.

Please Come Back

As part of my infamous back-log of unfinished essays, I have many more on this subject and other RDSP related topics, so please come back soon.

The Government Web-site on the topic: InfoCapsule 12: Carry forward of grant and bond entitlements.

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Apply for the DTC Please

I have spoken with a few folks who have convinced themselves they can’t get the Disability Tax Credit (DTC) so they won’t apply for the DTC. Given the stories lately about the CRA rejecting many applications, and how complicated the process is, many folks are not applying (when they should be applying).

Allow me to be clear, apply, fill in all the forms and let the CRA decide. If you don’t apply, you will never get the DTC.

Do the work, make sure you fill in the forms well, get all the help you can, but apply, please!

To paraphrase Wayne Gretzky you will receive 0% of the DTC applications you never send.

Without a DTC there is no RDSP, and while the Disability Tax Credit is not a large credit, it is still vital to have it to be able to get other services and help from the government. It is not easy to navigate the government red tape, but it is the most important thing you can do for your child or your loved one.

Apply for DTC

Should you Apply for the DTC ?

If you or your loved one has a disability recognized by the CRA or on their list, then yes is the answer.

Let me repeat my message, if you don’t apply you will not get the Disability Tax Credit, if you do apply you might (but if you don’t ask the answer is always NO).

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ODSP and RDSP Services that Clash ?

The Ontario Disability Support Program ( ODSP ) and the Registered Disability Savings Plan ( RDSP ) seem to be contradictory to each other.

What is an ODSP? The on-line resources say:

ODSP income support helps people with disabilities who are in financial need pay for living expenses like food and housing. It also provides health benefits like drug and dental coverage.

ODSP is a program of last resort.

This means the person with a disability looking for help, must have little or no income from a job or any other area. For many disabled folks in Ontario it is their only real income (and it is not that much).

ODSP RDSP

We have seen that the RDSP is a long-term savings program for disabled folks, but how does it affect the ODSP program? I had heard a few different interpretations, so I asked my MPP Lisa MacLeod to investigate, and her office received the following from the Ministry of Community and Social Services, opinion is as follows:

An RDSP is fully exempt under social assistance as income and assets, and does not impact eligibility for ODSP income support. All funds held in RDSPs are exempt when assessing eligibility for ODSP.  There is no maximum applied to this exemption, although the federal government limits RDSP contributions at $200,000.

ODSP recipients can also make unlimited withdrawals from their RDSPs, and these withdrawals will not affect their financial eligibility for ODSP or the amount of income support if they are spent in the month withdrawn.  Voluntary contributions to an RDSP from family, community groups or others will not affect a person’s financial eligibility for ODSP or the amount of income support provided.

Is it Worthwhile Having an RDSP ?

It is a good thing that the person with a disability can have an RDSP, however, they cannot use it to simply supplement their income. Any moneys withdrawn will need to be used within a month or that income will lower the ODSP payments to the disabled person. Any money withdrawn from an RDSP would be a short-term or one-time cost.

Given how little income the ODSP pays, any RDSP opened would most likely receive a CDSB (Canadian Disability Savings Bond) of $1000 a year. This suggests it is worthwhile opening an RDSP even if no money was available to deposit into the account. The RDSP beneficiary will not have their ODSP penalized for the RDSP.

How do they withdraw money from their RDSP without penalties? I will be writing about this very soon.

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RDSP Clarifications and Podcasts

Doug Hoyes invited me to chat with him on his podcast and it came out this past weekend.  Do I Lose My RDSP If I Go Bankrupt? includes the podcast and it is one of the best podcasts done by a former Nortel employee and an accountant, ever.

As usual, Doug’s information about the implications of bankruptcy on a Registered Disability Savings Plan (RDSP) was spot on, however, some of my answers, need some clarifications.

RDSP clarifications

I have met the Zen Master of RDSPs (he works for ESDC and does lectures on the topic) and I will be posting many more of these clarifications in the next little while.

Withdrawals

I said,

“… becomes an issue with when the money gets withdrawn for the person involved and after 55 or something like that…”

Not quite correct, the real age to be able to withdraw money from the RDSP with no penalties is 60 (due to the 10 year penalty withdrawal rule). The exact statement is

“Whenever money is withdrawn from an RDSP, all or part of the grants and the bonds that have been in the RDSP for fewer than 10 years must be repaid to the Government. You must repay $3 for every $1 that is taken out, up to the total amount of grants and bonds paid into the RDSP in the last 10 years. Repayments to the Government of Canada will be applied starting with the oldest grants and bonds paid into the plan first, and then towards the newest.”

There are nuances in this rule that I will be writing more about very soon.

Grants and Bonds

When I said:

“You get grants from the government based on either the contributor’s parents, in my son’s case, income levels. So, if I was not making a lot of money but I was still able to open the RDSP there might be some money that would go in there even if I put no money in, if my income is low enough.”

I was somewhat correct, however, to clarify further, there is more to the Grants & Bonds. The amount of the Grant and whether Bonds are paid, changes after the beneficiary turns 18. The income taken into consideration, is the beneficiary’s, after they turn 18.

This past week I had this one explained to me, and to clarify further income numbers used for grant calculations are from 2 years earlier. Currently for my son it is my income from 2 years ago, however, when he turns 19 it will be his income from when he was 17. This means it is important to file a tax return for the beneficiary from age 17 onward.

The RDSP website is even more specific:

“…beneficiaries over 18 years of age must have filed income tax returns for the past two years and must do so for all future taxation years…”

Statement of Entitlement

One other clarification is when I stumbled through this statement,

“Yeah in my case it’s pretty much a one to one matching. And I can put in a maximum of about $2,000 a year. So, they’ll be about $2,000 to $2,500 worth of grant on top of that that will go into what to match what I put in . But if I put more money in, there won’t be any more money from the government. But it’s still a savings plan for my son.”

I could have been clearer. Every February once the RDSP is in place, you will receive a very useful letter. To quote my notes from the lecture from the RDSP Zen-Master,

The annual February Statement of Entitlement is generated via software. The EDSC system connecting directly to the CRA and then doing a best estimate on what you should do for the year.

The take aways from this statement are:

  • The statement of entitlement is a very important letter to read carefully every year.
  • The CRA and ESDC have a data transferral system which the ESDC uses to give you a “how much to put in” set of instructions. This is very heartening to hear that this automated system takes the guess-work out of things. (unlike the Phoenix system, but we’ll leave that alone).

In Conclusion

Thank you to Doug Hoyes for allowing me onto his Debt Free in 30 podcast. Doug is an amazing resource, and his analysis of the safety of the RDSP in bankruptcy proceedings is great, and worrisome. You might think the RDSP would be safe, but as Doug points out the bankruptcy rulebook (he showed it to me), doesn’t mention it (or RRSPs either).

I will attempt to be more precise in my RDSP commentaries in the future.

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