Easter Seals Ontario has heard from families that they are not sure what an RDSP is or how it can help their child. John Fisher, with Desjardins Financial Security Investments Inc., offered to write an article for families to explain RDSPs and where they fit in the long-term planning for your child. You are encouraged to connect with your financial advisor or bank to find out if the RDSP is appropriate to your needs.
Having a disability, caring for a minor or adult child with a disability is mentally, emotionally and financially challenging.
Jessica, a parent, worried about her daughter, Sahara, and her quality-of-life options, “Am I able to give her the best possible life? What will happen to Sahara when I die?”.
Individuals and families across Canada have similar concerns and questions:
- How will I pay for specialized wheelchairs, physiotherapy, housing, and health supports?
- What will my child’s education, career and life options be like as they grow into adulthood?
- Will they be able to function and live independently, and how much will it cost?
- Who will be there to manage and support my child after we’ve passed on?
The Canadian government recognized the critical need for the ongoing and future care of those with disabilities and created the Registered Disability Savings Plan (RDSP). The RDSP program is a long-term savings plan to help Canadians with disabilities save for the future, giving them financial security and peace of mind.
Since 2008, over 165,000 Canadians** have contributed funds that grow over years of investing. Many have also taken advantage of federal grants and bonds to maximize their savings. As a result, RDSP is a premier tool to help families prepare for the future.
Who is eligible?
To be eligible for an RDSP, you must meet these four requirements:
- The beneficiary is a resident of Canada.
- The beneficiary must have a valid Social Insurance Number.
- The beneficiary is eligible for the Disability Tax Credit.
- The beneficiary is 59 years of age or less by December 31st of the year that the plan is opened.
Who can hold an RDSP?
Individuals over the age of 18 can open, hold and manage the plan. However, if the individual has capacity challenges, then a parent, legal guardian or designated authority can act as holder of the plan for the beneficiary. For those under 18, a parent or legal guardian can hold the plan and transfer it to the beneficiary when they turn 18 or be joint holders.
Who can contribute funds?
Adult individuals, family members, friends or the community at large can contribute to the plan up to a maximum of $200,000. Although the contributions are not tax-deductible, the earnings that grow within the plan are tax-free until withdrawn.
What is the RDSP used for?
The beneficiary can use the funds for anything – housing, education, transportation, vacations, health and ongoing supply and support needs. In addition, the funds provide independence, quality of life and an extra level of financial security.
How does the RDSP work?
Contributions can be made to the plan until the end of the calendar year the beneficiary turns 59. There are no limits on yearly contributions, but there is a lifetime limit of $200,000.
Depending on the beneficiary’s age and income level, the federal government may contribute up to $70,000 to the individual’s plan.
There are two components to the government’s contributions, the Canada Savings Disability Bond (the Bond) and the Canada Savings Disability Grant (the Grant).
How does the Bond work?
For low-income families, the Bond portion consists of up to an annual $1,000 federal contribution with a lifetime contribution limit of $20,000. Contributions do not have to be made to receive the bond for low-income families. However, the beneficiary must be 49 years or younger, and you can apply for the Bond when the RDSP is opened.
How does the Grant work?
The Grant portion consists of up to $3,500 annually depending on the amount of the contributions and based on the personal lifetime contribution of $70,000. Application for the Grant is made at the time of opening the RDSP plan.
How do you withdraw funds?
The RDSP was established to be a long-term savings vehicle, so withdrawal parameters were put into place. The government implemented the 10-Year Rule. In order to withdraw funds from the RDSP without penalties, a time frame of ten years must elapse from the date of the federal’s last contribution of bonds and/or grants.
Keeping in mind the 10-Year Rule, there are three different payouts within the RDSP plan:
A. Regularly scheduled payments called Lifetime Disability Assistance Payments (LDAPs) must begin withdrawals by the end of the year that the beneficiary turns 60.
B. Lump-sum payments called Disability Assistance Payment (DAP) are sometimes used for major purchases such as a down payment on a home. The maximum annual withdrawal depends on what is in the RDSP plan.
C. Specific payments of up to $10,000 annually are available if the beneficiary’s life expectancy is five years or less and requires documentation from a medical practitioner. The 10-Year Rule is waived for this type of withdrawal.
What happens to the RDSP if the beneficiary passes on?
In such cases, the RDSP must be closed by December 31st of the following year. Federal Grant and Bond contributions made within ten years of the beneficiary’s death are refunded to the government, and all the remaining funds are transferred to the beneficiary’s estate and taxed.
Key Benefit to Note!
FUNDS WITHIN THE RDSP DO NOT IMPACT OTHER SOCIAL ASSISTANCE PROGRAMS.
How do you open an RDSP?
There are various investment options depending on the individual’s age, anticipated needs and other sources of income. A qualified financial and investment professional or institution will answer all your questions and provide you with the information and forms needed.
The RDSP is a highly effective tool for individuals with a disability to save for their ongoing care and future.
For questions and more information, please get in touch with John Fischer, Mutual Fund Representative and Life and Health Insurance Advisor, with Desjardins Financial Security Investments Inc. at 1-844-859-4902 or www.johnfischer.ca.
Additional information can be found on the Government of Canada’s website https://www.canada.ca/en/employment-social-development/programs/disability/savings.html