Could the Registered Disability Savings Plan benefit your family?
Colin Younker, Senior Tax Advisor with MRSB Group, discusses the potential benefits of this new government savings plan.
If you are the parent or guardian of a disabled child or adult, you may worry about the long-term financial security of your loved one. The Government of Canada has addressed this issue and introduced a savings plan meant to help those caring for a person with a disability.
Just as the Registered Retirement Savings Plan (RRSP) is designed to help you save for your post-employment future, the Registered Disability Savings Plan (RDSP) is meant to provide a nest egg toward your family member’s long-term costs. Considering that many disabled persons find it difficult to maintain full time employment because of medical or other barriers, it can be a real assurance to know that you have funds put away for when your family member might need it most.
Appearing to be a fairly non-restrictive plan, an individual may be designated as the beneficiary of an RDSP if they meet the following criteria:
- They are a resident of Canada
- They have a valid social insurance number (SIN)
- They are eligible for the disability amount under the rules of the Income Tax Act of Canada
- They are under the age of 60 (this does not apply when the beneficiary’s RDSP is transferred from their former RDSP)
Many financial institutions now offer RDSPs and your first step can be to contact your financial advisor. The contribution limit is an overall lifetime contribution of $200,000 and there is no annual limit to what you choose to contribute. You may contribute to your RDSP until the end of the calendar year during which the beneficiary turns 59. Your RDSP earnings will accumulate tax-free until funds are withdrawn from the plan.
There are some other major benefits to contributing to an RDSP, especially for those who start the process early:
- The government of Canada will pay matching grants of up to $3,500 per year; this is capped at $70,000 in lifetime grants
- Bonds of up to $1,000 per year are available for low income and modest income beneficiaries. No matching contribution is required and the maximum lifetime contribution is $20,000 (note that the bond is not based on other family income, only the beneficiary’s)
- As there are no annual contribution rules, significant contributions can be made early on to benefit from tax-free growth
- Contributions can be made for a disabled child under the age of majority and also for an adult by any person, provided the beneficiary has approved the contributions in writing
- When funds are paid out of RDSPs they do not affect other benefits such as OAS or specific provincial programs
If you think your family member might be eligible for the RDSP, you can find more information on the Government of Canada’s website or by speaking with a financial advisor.