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.
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.
“… becomes an issue with when the money gets withdrawn for the person involved and after 55 or something like that…”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“Whenever money is withdrawn from an RDSP, all or part of the grants and the bonds that have been in the RDSP for fewer than 10 years must be repaid to the Government.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).
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.