Registered Disability Savings PlanRegistered Disability Savings Plan

The Canadian Registered Disability Savings Plan or RDSP helps Canadians with disabilities and their families save for the future. The RDSP is a Canada-wide registered matched savings plan that is designed specifically for people with disabilities. It is important to know about this program if you or someone in your family, like a child, has a significant disability.

Parents Planning for Disabled Children

Parents who need to plan for children who have significant life-long levels of disability will want to know about this long-term program. It is setup to work best for people in the long term. Meaning, the real advantage will benefit those who contribute funds to the program without the idea of accessing funds for a long time. At least not for ten years. It is not a short-term solution where you could dip into funds. The Registered Disability Savings Plan is as its name states, a savings plan. Parents of children with life-long disabilities will now have a way to save money for the child’s adulthood needs with the added bonus of government assistance.

Who’s Eligible?

RDSP is available to Canadian Residents under the age of 60 who qualify and are benefiting from the Disability tax credit. Accessing the Registered Disability Savings Plan program does not affect your benefits or social assistance moving forward.

How to Interpret the Ins and Outs of the Program

Like any government program, especially one that involves money can be confusing. In fact mind bending! The best way to think about the Registered Disability Savings Plan is like a partnership where you (or your disabled child) will gain the most from the relationship. Why? Because you or someone in your family has a disability that will impact your overall life expenses.

The RDSP program blends both grants and bonds. Contacting a tax specialist is the smartest way to determine the benefits for your situation. As an example, if you are 49 years old or under, you could receive up to $3,500 per year in grants. You may also be eligible to receive up to $1,000 in bonds, even if no contribution is made.

From what I’ve reviewed thus far of the program, financial outcomes depend on:
how much you currently make (family income)
how much you can provide annually
how much, or if you can contribute a lump sum
how long you pay into the program

RDSP – Key Points

A long-term savings and investment program that has both a grant and bond structure.
1. * A long-term savings plan that has a 10-year holdback component
– meaning if you take funds out before 10 years the government takes back their contribution but you still get to keep any bank compound interest earned.
2. No annual amount required but there is a lifetime limit of $200,00.
3.The government matches investment contribution by 300% – with a limit of $3500. yearly.
– meaning for your $1,000. The government provides $3,000. with a limit of $70,000 over the lifetime of the program. (Applies if the family income is below 85,414) this is the grant component.
4. For people living on low incomes (less than $24,863) the federal government gives $1,000. for 20 yrs – this is the Bond component.
5. * Anyone can contribute to an RDSP plan – (family, friends, etc)
Depending on family’s income – any money saved (or gathered by relatives) and put into RDSP account as a lump sum immediately triples in value – and then it can begin to grow in this savings investment program.
6. Exempt from provincial disability income benefits
– withdrawn amounts at the scheduled age are not get clawed back based on existing assistance programs.
7. * People can choose what to do with funds when withdrawn – there are no restrictions on how funds are spent.

PLAN Examples

Below I have outlined some key considerations followed by a few example scenarios.

Example 1:

Plan holder – age 22 on ODSP assistance
Plan holder is age 22 at start – contributes up until age 52
annual contribution into plan equals $1,500. ($125. Mth)
selects a conservative investment program
makes a one-time lump sum when they are age 30 of $5,000.
Selects to start to receive payments from the plan at age 40
RESULTS
estimated grant from government as adult = $28,000
estimated bond from government as adult = $8,000

Total contributed by family/self =  $51,500
Total grants/bonds from government =  $36,000
Total contribution from both = $87,500

Example 2:

Plan holder – 10 yr child with severe CP
Using family yearly income as source provider of plan (over $75,769)

Plan holder is age 10 at start – parents contribute until child is age 40
annual contribution into plan equals $1,500 ($125. Mth)
selects a conservative investment program
makes a one-time lump sum of $10,000 at age 10 (start of the plan)
Selects to start to receive payments from plan at age 40
RESULTS
estimated grant from government as child $9,000
estimated grant from government as adult $38,500
estimated bond from government as child 0
estimated bond from government as adult $11,000

Total contributed by family = $56,500 (with 1 X lump sum)
Total grants/bonds from government = $58,500
Total contribution from both sources = $115,000

Example 3:

Plan holder – baby with Downs Syndrome
Using family yearly income as source – between $37,885-$75,769

Plan holder is age 1 at start – contributes until age 33
annual contribution into plan equals $1,500 ($125. Mth)
selects a conservative investment program
makes a one-time lump sum of $20,000 at age 1 (start of the plan)
Selects to start to receive payments from plan at age 35
RESULTS
estimated grant from government as child $63,000
estimated grant from government as adult $7,000
estimated bond from government as child 0
estimated bond from government as adult $6,000

Total contribution from family = $69,500 (with 1 X lump sum)
Total grants/bonds from government = $76,000
Total contribution from all sources = $145,500

To create these examples I used the downloadable RDSP calculator. You can do the same here

To learn more visit: www.plan.ca  or www.rdsp.com

Information Sessions

Take some time to learn about the Registered Disability Savings Plan.

In preparation for tax time, or just to learn more you could listen to a teleseminar by phone on March 7th.

Just click on the link below to register.

The Registered Disability Savings Plan

Video

Here is an interesting video