First proposed in the March 2007 federal budget, the Registered Disability Savings Plan provides incentive and support for parents wishing to save for the long-term security of children with severe disabilities.
The RDSP allows disabled individuals or their parents to contribute up to a lifetime maximum of $200,000 per beneficiary. To qualify, beneficiaries must be eligible for the disability tax credit (DTC), and must be residents of Canada.
The RDSP is structured much like an RESP (Registered Education Savings Plan): Contributions are not tax-deductible, but funds held within the plan are allowed to grow tax-deferred. Furthermore, contributors are eligible to receive supplements of up to $3,500 per year from the federal government in the form of Canada Disability Savings Grants. Depending on net family income, some contributors may also qualify for the Canada Disability Savings Bond of $1,000.
Withdrawals from the plan are required to begin no later than age 60, at which point accrued growth as well as any CDSG and/or CDSB amounts associated with the withdrawals would be taxed in the hands of the beneficiary. Contribution amounts may be withdrawn tax-free.
This plan is particularly attractive to families with net income below certain thresholds. For example, families qualifying for the maximum benefit will be eligible to receive $3,500 per year from the government while only having to contribute $1,500 of their own money, and may also receive the Canada Disability Savings Bond of $1,000 which is independent of the level of contributions.
Like the RESP, for those who qualify, the RDSP is too good to pass up, as even those with family income above the highest threshold can receive 100 per cent of their contribution to a maximum of $1,000 per year. Over a lifetime, this plan has the potential to make a huge difference in the lives of those who need the support.
While this plan is great news for those who qualify, it also makes financial planning for those affected by disabilities more challenging. In many cases, income-tested plans such as the proposed RDSP cause families to re-consider their entire financial structures.
Business owners, for example, often have the ability to control the net income reported on their personal tax returns. Those with disabled children will need to consider how their decisions affect the level of benefits they will receive.
Even salaried employees (through RRSP contributions and debt management strategies) can take actions to reduce net family income, if they are pro-active.
If you are potentially eligible for the RDSP, consider setting one up as soon as possible. But more importantly, consider consulting with a financial planner. A comprehensive plan that encompasses all of your financial needs would likely serve you the best.
For more information on how to set up a Registered Disability Plan, or other financial planning topics, please feel free to call or e-mail.
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Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). The views of the author do not necessarily reflect those of RJL. This article is for information only. Raymond James Ltd. is a member of Canadian Investor Protection Fund. For more information feel free to call Jim at (250) 594-1100, or email at firstname.lastname@example.org. and/or visit www.jimgrant.ca.