Happy 10th Anniversary to the Registered Disability Savings Plan – If only more knew about you !
Registered Disability Savings Plans (RDSPs) have been available to Canadians who qualify for the disability tax credit since 2009. They were introduced primarily to help alleviate the concern that many parents and grandparents of a child with a disability have about how best to ensure a child’s financial security was maintained when they were no longer alive to provide support. RDSPs provide an opportunity to save for long term financial needs such as living costs and future medical needs. An RDSP maybe set up by the individual with a disability or a parent or legal representative. Contributions to an RDSP are not tax deductible but it is a savings plan that can accumulate more easily and more quickly thanks to tax deferred growth and generous government grants.
Why aren’t more families taking advantage of RDSPs?
Top 10 reasons to consider opening an RDSP for yourself or a loved one with a disability
- The total lifetime contribution for each beneficiary is $200,000 with no annual contribution limits
- For beneficiaries who are less than 50 years of age, contributions to an RDSP are matched by the Federal government based on family income with up to $3.500 a year in Canada Disability Savings Grants (CDSG) and up to $1,000 a year in Canada Disability Savings Bonds (CDSB)
- CDSGs and CDSBs can be caught up on retroactively for up to 10 years. Grant amounts would be based on how much is contributed and what family income was in prior years.
- Beneficiaries of an RDSP can receive up to $70,000 from the Federal Government in matching contributions based on net family income. Family income is that of the beneficiary when the beneficiary is 18 or older.
- Beneficiaries can receive up to $20,000 from the Federal Government in the form of Canada Disability Savings Bonds without making a contribution. CDSBs of up to $1,000 per year can be received if net family income is low (annual income of less than $30,000), with a sliding scale between $30,000 and $40,970. This means you do not need to put money into an RDSP to get the bond but you must open an RDSP.
- All provinces and territories in Canada fully or partially exempt RDSP assets and income when determining other federal and provincial financial assistance and benefit programs including CPP Disability Benefits, Employment insurance, Old Age Security and Guaranteed Income Supplement (GIS) as well as the GST/HST tax credit and Canada Child Benefit,
- Up to $200,000 in transfers from an RRSP/RRIF/RPP transfers from a deceased parent or grandparent can be made to an RDSP for a financially dependent child or grandchild on a tax deferred basis. Under certain circumstances, earnings from a Registered Education Savings Plan can also be transferred into an existing RDSP.
- Once it is set up, anyone can contribute to an RDSP for the benefit of the beneficiary with the consent of the account holder. That can make it easier to maximize Canada Disability Savings Grants
- RDSP beneficiaries are eligible to receive grants until they reach age 50 and investments remain invested until age 60 in order to maximize benefits and avoid any claw backs. Any bond or grant that has been in the plan for more than 10 years belongs to the beneficiary and does not need to be repaid.
- There are no restrictions on how money withdrawn from the plan is spent
3 more postive changes to RDSPs announced in the recent Federal Budget 2019
- RDSPs can continue to remain open even if the beneficiary becomes ineligible for the Disability Tax Credit (although contributions will not be permitted, and further Grants and Bonds will not be available). This offers some relief to RDSP beneficiaries who no longer qualify for the DTC as they will no longer have to close their RDSP account and risk having to repay some or all of the Grants and Bonds already received
- Staring in 2021, grant and bond repayment calculations will gradually reduce when the RDSP beneficiary turns age 51.
- The Government intends to exempt RDSPs rom seizure in a bankruptcy other than those contributions amde in the 12 months before a bankruptcy filing. This makes good sense.
Why are so many Canadians not taking advantage of FREE MONEY ?
Perhaps it’s a case of being overburdened with other daily tasks or a lack of financial literacy or procrastination or an aversion to paperwork but an estimated and astonishing 80% of the 500,000 Canadians eligible for an RDSP have yet to open one. That’s millions of dollars of unpaid grants and bonds that could help those with a disability better prepare financially for the future. It’s hard to believe that anyone would turn down free money so please help us close that gap and spread the word about Registered Disability Savings Plans. I would be happy to provide more information and help you or a loved one get started with an RDSP. Let’s chat
