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will not affect their financial eligibility for ODSP or the amount of income support if they are spent in the month withdrawn.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 Any moneys withdrawn will need to be used within a month or that income will lower the ODSP payments to the disabled person. Any money withdrawn from an RDSP would be a short-term or one-time cost.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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RDSP Deposit Obfuscations Continue

It is that time of year, when I transfer money into my son’s Registered Disability Savings Plan (RDSP), and I continue to be disappointed by TD. I spoke to a very nice young man on the phone, who followed the  prescribed  method, by transferring money from my trading account to my son’ s account. We were chatting while the transaction bounced around the TD computers, and I asked, ” Are TD ever going to allow me to contribute from my Chequing account?”, and the  young man optimistically responded he thought that this might happen sometime soon .

As most of my regular readers know, I ask this question each time I speak to a TD rep , and I usually tweet the same question to TD.

I received assurances that this circuitous savings method would be updated soon. It has been many years that I have had this RDSP set up, yet, I continue to have to follow this diagram.

RDSP

Deposit Route for Money to My Son’s RDSP

I can deposit to my RRSP, to my children’ s RESPs, but the RDSP continues to be a step too far. Please remember that the TD Direct Investing RDSP is the best product for RDSPs that I can find, but it does have a few shortcomings.

My savings methodology continues to be:

  • Every pay cheque, I transfer a specific amount to my TD trading account
  • I have set up automatic reminders in my calendars to tell me to call TD to do the transfer.
  • I spend 15 minutes chatting with a very nice person from TD who helps me out, and optimistically says that the system will be better
  • A few days later use the funds to rebalance the account (a sleepy portfolio).

Is There a Positive View on This?

The optimistic view on this is that this does force me every 6 months to rebalance and check the portfolio, which is true. This way the portfolio remains relatively well-balanced, and when the governments grant money comes in I can re-balance again.

I would rather be able to deposit funds directly to the RDSP account, from my Chequing account, removing many steps in the process.

Yes, I have written about this before:

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5 Steps to an RDSP

So I am blatantly stealing this from Kerry K at Squawkfox, but because she thought of it talking to me, I’ll take partial credit for it. Here are 5 steps to an RDSP, they may seem hard, but you can do it.

  1. Get your child a Social Insurance number. This is the first piece of the puzzle, but it is vital. Your child will also need it for an RESP too.
  2. Build your team. This was an excellent turn of phrase, because you are going to need it to get an RDSP. A Doctor, an accountant, a nurse practitioner, an Occupational Therapist and others can be valuable members of this team.
  3. With your Doctor or Medical professional fill in the CRA forms to start the process to get a Disability Tax Certificate. The DTC is another key part of the puzzle, without this, you cannot open an RDSP. Yes it is not easy, but you need to do it yourself, to ensure you get all the money you are due.
  4. Go to a Bank and open an RDSP account. Sounds simple, doesn’t it? It isn’t that easy, due to the banks disinterest in the program. As I have said, the only full investment vehicle I can find is TD Direct Investment.
  5. Put money into the account! If you have low income, you will still get the Disability Bond money which adds up. Depending on your income, the government will match moneys you put into the plan.

While the whole RDSP process seems daunting, it is still an important financial tool to help out the disabled. There is help out there, but, be careful who you get help from.

Kerry’s Version

Kerry’s version is much more eloquent, I figure I should include it, given I am cribbing from it.

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DTC RDSP Vicious Circle

While chatting with Kerry from Squawkfox, Mrs. C8j and I did some research and an interesting point was found, about the DTC RDSP vicious circle.

The non-refundable nature of the DTC has created a situation where some low-income disabled people don’t even bother to apply for the DTC, thinking it won’t benefit them. That can often be a mistake, as DTC certification has become a necessary requirement for a number of other government programs, such as RDSPs (registered disability savings plans) and the child disability credit.   “

That one left me quite upset. There is data about how few RDSPs are out there, but this explanation rings far too true for my liking.

This issue exists with RESPs too. Low-income families, think they need to save a lot to make the RESP system work. No! Open the account, put a small amount in there, but you might be eligible for the Canada Learning Bond, which is free money.

The Canada Disability Savings Bond

Getting back to RDSPs, there is a similar benefit for low income families. The Canada Disability Savings Bond is $1000 a year that can be deposited in your RDSP, even if you don’t make a deposit. This is why it is important to help folks with the RDSP.

No one should be leaving this kind of free money on the table.

The DTC RDSP vicious circle is what caused my wife to say, “The whole system is like navigating the fire swamp in the Princess Bride”.  That is a very apt analogy.

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