If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.
The Registered Disability Savings Plan was designed to be a long-term option for those looking to plan for the future financial security of themselves or their family member. As such, the plan will be the most beneficial for those who are able to open and save over a number of years. For many people, they may not have the option of saving over a larger number of years, and will therefore look to use the plan somewhat differently then those (for instance) who are saving for a child and can start early.
A friend of mine was recently explaining how she was having some trouble explaining to the bank that she didn’t want to receive any grant and bond, and instead wanted to simply put in her money so that she could take out payments whenever she wanted. At 48, she realized that she was only eligible for two years of grant, and wanted to be able to use the RDSP right away, instead of waiting to take out payments at the age of 60.
Now from a purely financial standpoint, her deciding to forgo receiving two years of the grant doesn’t make sense. In order to maximize the amount of money in the plan, it would make more sense to take advantage of the grant. I mean, who wouldn’t want free money into their plan?
That would be true if it were all about money….but it’s not.
For some people like my friend, they have been restricted from using money they receive in the manner they want. Although different for each jurisdiction, in most provinces the regulations tied to those receiving disability benefits mean that the amount of money you can save and spend is restricted, along with restrictions on what you can spend it on. For someone who has had to justify every purchase they ever make to make sure they don’t lose their disability benefits, having the opportunity to put money away, and then spend it on whatever they want is a very exciting prospect.
So why is there confusion?
1) Many people are still uncertain as to how you can take out payments, and what are the rules and restrictions (see my post on payments by clicking here) .
2) The launch of the RDSP happened very quickly and many of the financial institutions (along with everyone else) are still trying to wrap their heads around what is allowed and what isn’t.
3) Financial Advisors are trained to make you money, so if you are proposing to use the plan in a way that makes less money it will be important to explain why.
4) Financial institutions are not required to allow every type of payment, only payments determined by the Lifetime Disability Assistance Payment formula. From what we have seen so far, most have been very flexible around the types of payments they allow and have not restricted payments to the formula.
The KEY: Always make sure to outline your intentions and plan for the RDSP. Answer the question: How do I want to use it? When do I want to take out payments? Do I want to use it as a long term savings plan, or do I want to begin using it now? What type of payments do I want to take out, lump sums or annual payments?
By letting your financial advisor know how you intend to use the plan, you can make sure that there is no confusion, and that it is best suited for you.
6 comments
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October 23, 2009 at 6:53 am
Shane
I don’t understand why your friend still wouldn’t take advantage of the
grant and bond amounts though. I get that she will be taking money out of
the account as desired but why not hold the grant/bond amount in the
meantime and simply take the clawback when it comes. That way, she is making
interest on the grant money while it sits in the account. Taking the grant
does not restrict withdrawals, it simply imposes a penalty, one which this
person would be perfectly willing to pay ie the return of the grant on a
withdrawal.
October 23, 2009 at 5:00 pm
Doug Brodhead
Hi Shane,
Very good point. In the case of my friend, she is planning to start taking money out right away (no vesting time), so the grant and bond would have limited time (if any) in the plan. I agree, for others, if they aren’t planning to spend right away, they might want to capitalize on any interest from the grant and bond.
November 13, 2009 at 1:16 am
Phil McKeating
Thanks to RBC, I was able to contribute on behalf of my 40 yr. old daughter on ODSP, last Feb. for 2008. While it took many months for anything more to happen, The $3500 grant has been credited along with both the 2008 and 2009 $1000. bonds.—for a total of $7000. I have also now made the 2009 contribution of $1500. and look forward to the $3500. grant, for a 2yr total of $12,000—-all for a $3000. contribution.
I am also considering a Henson Trust.
If keep up with the RDSP until she is 50, can she not draw anything until 60, or only with REpayment “penalties”. Does a Henson in any way complicate things?? PJM
November 13, 2009 at 5:11 pm
Doug Brodhead
Hi Phil,
That is correct. If you want to take advantage of the full amount federal money until she reaches 50, then you would need to wait until 60 before taking out payments. If, for example, you decided at 58 that you had waited long enough you could take out payments, but you would lose two years of grant and bond from her plan.
As for having a trust and RDSP, from what we have heard there aren’t any governments restricting people to one or the other. It wouldn’t make sense to restrict people to one or another, as many people who are a little bit older will probably want to use a combination of both.
November 13, 2009 at 2:38 pm
Carl Lemieux
I am the parent of a 22 year old son living with Schizophrenia. He is receiving government benefits (we live in Quebec). The introduction of the RDSP has made an impact on him. He recognizes the need to save for when he is older and his financial needs may be greater. The unfortunate aspect is that the Quebec Government (like some other Provinces) has limited the amount he can withdraw in the future to $300 per month without affecting his benefits, otherwise for every dollar received above $300 an aequal amount is deducted from his benefits. The other suprising negative in our Province is that a Henson Trust does not work. Although lawyers create them within Wills, the Adminsitrative Tribunal has shot done every fully discretionary trust that benefitis someone receiving government assistance. We have to get the governments to realize that keeping our loved ones at or below the line of poverty is not in their best interests! Will they ever listen and understand??
December 28, 2009 at 3:01 pm
Bill Reynders
My client is 54 and was recently disabled.With his pension and her income,family income is approx $100,000Can you tell me if setting up a RDSP plan still makes sense.If so what are the draw backs and the possible advantages?