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1. Receive up to $70,000 from the federal government in matching contributions. The federal government has implemented the Canada Disability Savings Grant program to assist Canadians with disabilities to save for their futures.

The federal government will contribute up to $3,500 per year to your RDSP through the Canada Disability Savings Grant program, if your net family income is below $81,941. (Family income is that of the beneficiary if the beneficiary is 18 years or older). The government’s matching contribution rates are as follows:

– $1,500 on the first $500 that you or your family contribute to your RDSP, and

– $2,000 on the next $1,000 that you contribute.

2. Receive up to $20,000 from the federal government without making a contribution. The Canada Disability Savings Bond program will contribute up to $20,000 into your RDSP if you have a low income.

The federal government will contribute $1,000 per year to your RDSP through the Canada Disability Savings Bond program, if your net family income is below $23,855. (Family income is that of the beneficiary once the beneficiary is 18 years or older.) A smaller amount is contributed into your RDSP if your incomes is between $23,856 and $40,970 – all without you making a contribution yourself.

3. Saving in an RDSP doesn’t affect other disability benefits. Your provincial disability benefits are not affected when you save in an RDSP, no matter what province or territory you live in. Federal government benefits, like Canada Pension Plan, Disability Benefits, Old Age Security and Guaranteed Income Supplement are also not affected.

When it comes time to withdraw your money from your RDSP, the federal government – and most provincial governments – have said that you can use any amount from your RDSP without affecting your benefits.

Quebec, New Brunswick and Prince Edward Island have said that your benefits won’t be affected until your monthly income is greater than a certain amount. (In New Brunswick, you can receive $800 per month; in Quebec, $300 per month; and in PEI, you can receive an amount that brings your income to the low income levels as defined by the National Council of Welfare.)

Remember that when you turn 65, your go off of your provincial disability benefits and on to the federal government programs for seniors: Old Age Security and Guaranteed Income Supplement.

4. Compound Interest. When you save money and invest it in an RDSP, it begins to earn you income. After only a few years, your RDSP’s annual investment income is greater than your annual $1,500 contribution. You can see in the table below that if you earn 5% on your savings, your annual investment income is greater than your annual contributions after only 5 years.

    Your Contributions Federal  Gov. Contributions Income on Investment Total RDSP Savings
    Year 1
    $1,500
    $4,500
    $300
    $6,300
    Year 2
    $1,500
    $4,500
    $615
    $12,915
    Year 3
    $1,500
    $4,500
    $946
    $19,861
    Year 4
    $1,500
    $4,500
    $1,293
    $27,154
    Year 5
    $1,500
    $4,500
    $1,658
    $34,811

 

5. You can spend your RDSP money on anything you want. Neither the federal government nor provincial governments have placed restrictions on what you can spend your RDSP money on. It’s yours – you can do what you want with it.

6. Anyone can make contributions to your RDSP. You. Your parents. Your grandparents. Your brothers, sisters, aunts and uncles. Even your friends. And when they contribute, the federal government contributes even more – up to three times more!

7. If you receive a lump sum amount, you can shelter you money in an RDSP. If you receive an inheritance, a legal settlement or a large severance payment, you may be able to put it into an RDSP for future use without affecting your federal or provincial disability benefits.

8. The income that you earn on your savings in an RDSP is tax deferred. You only have to pay tax when you make withdrawals from your RDSP. And you pay tax only on the government contributions and the investment income in your RDSP. You don’t pay tax on the money that you have contributed.

9. People will begin to see you differently. People have told us that when they own a valuable asset, others treat them like investors, customers and home owners rather than people with disabilities.

10. You will have more choices. Think what a difference it would make to have a bit more money so that you could begin to do things that you can’t financially do now.

(from www.rdspresource.ca)

In the early days of the RDSP, a financially astute parent said, “If you want to maximize the benefit of the RDSP (and you have the cash to afford it), you should put $171,500 into the plan in the first year and then an additional $1,500 per year each of the next 29 years.”  It makes sense from a purely mathematical perspective.  In 30 years time (with an average annual return of 5.5%) the RDSP will be worth approximately $1,000,000.

This method maximizes the federal government contributions, it maximizes the tax savings and it takes advantage of provincial government rules that permit people on disability benefits to have an RDSP.  In other words it is useful from both a saving and an estate planning perspective.  But this scenario makes a couple of vital assumptions:

  • That you have $171,500, and
  • That your relative is already 18.

Recently, I had a conversation with an equally astute parent who added a third vital assumption to the list.  You have to be able to invest the $171,500 for a long period – nearly to thirty years.  He emphasized, “If you withdraw any amount before thirty years from the time you open the plan, you will have to repay some amount to the federal government.  While it’s money you wouldn’t have had anyway, most people are adverse to this idea.”

This is really important because a lot of families might be able to find that much cash but they would need to borrow against a home or cash in an RRSP or other asset.  That asset may represent their emergency cushion that they would use for themselves or their relative if something unforeseen arose.  That is, they cannot be sure that they can part with it for 30 years.

The significance of this latter point is that most families will find the RDSP useful either as a saving or an estate planning tool but not both.

As a saving tool, an investment of $30,000 over 20 years will net as much as $90,000 in Canada Disability Savings Grant and Bond from the federal government.  Thirty years from starting, the RDSP will be worth about $350,000 (with an average annual investment return of 5.5%).  That’s great.

As an estate planning tool, $200,000 contributed to a plan after the beneficiary turns 50 will not garner any federal contribution.  It will, however, earn income on a tax deferred basis.  And any amount can be withdrawn at any time without any penalties from the federal government. In most provinces, these withdrawals (of any amount) will have no impact on the beneficiary’s disability benefits.

So in summary, the RDSP is a great savings vehicle and it is a great estate planning tool but – unless you can part with your investment for the long haul, it does not serve both purposes at one time.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.

The 2010 Federal Budget had some really exciting news regarding the RDSP.  For those of you who were able to read through the entire text, you may have come across some very important highlights, including:

  • In recognition that families of children with disabilities may not be able to contribute regularly to their Registered Disability Savings Plan (RDSP), Budget 2010 proposes to allow a 10-year carry forward of Canada Disability Savings Grant (CDSG) and  Canadian Disability Savings Bond (CDSB) entitlements.  In event of delays of opening a RDSP as a result of the complex guardianship processes that are in place in some provinces, the proposed carry forward will preserve a beneficiary’s entitlement to CDSGs and CDSBs so that they are available when a plan is opened.
  • In the Budget, the government is also encouraging all provinces to look at introducing more streamlined alternative processes to formal guardianship arrangements, such as those in place in British Columbia.
  • To provide parents more flexibility in ensuring that their savings may be used to support a disabled child, when they are no longer able to support the child, Budget 2010 proposes to allow a deceased individual’s RRSP or RRIF proceeds to be transferred, on a tax-free basis, to the RDSP of a financially dependent infirm child or grandchild.
  • To enhance accessibility for people with disabilities, Budget 2010 extends the Enabling Accessibility Fund and provides $45 million over the next three years. The Fund will continue its support for small projects which focus on removing barriers and enhancing accessibility. The program will also support a number of mid-sized projects, allowing for communities to undertake larger retrofit projects or foster partnerships for new facilities.

PLAN is very pleased with the proposed initiatives around the RDSP that have been outlined in the Budget.  These will have serious impact on thousands of Canadians with an RDSP or looking to set up an RDSP.

Here is a quick breakdown of the highlights identified above:

RRSP Rollover

The first change is that parents and grandparents will now be able to roll their RRSPs and RRIFs into a RDSP of a loved one with a disability on a tax deferred basis.

The advantage of the rollover is twofold.  Because the RRSPs and RRIFs are collapsed at death, the entire amount becomes taxable income in one year.  This often results in substantial tax payable.  When the funds are passed into an RDSP no tax is payable.  When the funds are withdrawn from the RDSP, they are taxable in the hands of the beneficiary.  In most cases they will be withdrawn over many years, taxed at the beneficiary’s tax rate, and little tax will be paid.

For example, if a grandparent with a $100,000 RIF were to pass away, the $100,000 would become income in the year of their death and, depending on the province, would be taxed at about 40%.  If rolled over into the RDSP of a grandchild, that’s a $40,000 savings!

The rollover is available to people who qualify for RDSPs.  In addition, the beneficiary must be a dependent.  Dependency is determined in one of two ways: either, there is a relationship of dependency – the parents or grandparents provide care or financial support or the beneficiary is financially dependent.  Adults are considered financially dependent if their income is below $17,621 (for 2010).

The amount that can be rolled over is limited to the contribution space remaining in a beneficiary’s RDSP.  Remember that the lifetime limit is $200,000.  This amount will not result in a federal government contribution.

Also, check with your lawyer or accountant about rules for RRSP and RRIF holders who have died since 2008.

Carry Forward of Grants and Bonds

The second change is the ability to carry forward entitlements for the Canada Disability Savings Grant and Bond.  The 2010 budget proposes to pay the Grant on entitlements for the previous 10 years (but not earlier than 2008 when the plan was established), if the person was eligible for the Disability Tax Credit then.

This means people establishing plans now will be able to claim the Grant for 2008 and 2009.  If a family opens a plan for their loved one and contributes $4,500 in 2010, the federal government will contribute as much as 10,500 in Grant and, if the person qualifies, they may be eligible for as much as $3,000 more in Bond.

While up to 10 years of entitlements may be carried forward, no more than 10,500 in Grant will be paid in any given year.

Guardianship and Law Reform

Many families outside of BC, who would like to assist a relative who might not be found to have contractual capacity, have not opened RDSPs because of the obstacles presented by adult guardianship.  If an adult does not act as holder of a plan that is set up when they are an adult, then the holder must be a legal representative.  Outside of BC, the options are adult guardianship or a Power of Attorney.

Many families have not opened plans because they do not want to subject their loved one to the process of being deemed incompetent and having many decision-making powers stripped away.  Others have expressed concern at the cost of the process

People in BC are fortunate to be able to appoint a legal “Representative” with a Representation Agreement even if they might not have contractual capacity.  A Representation Agreement is much like a Power of Attorney, except the person making the Agreement does not need to demonstrate contractual capacity nor does the Representation Agreement need to be drawn up by a lawyer.  In fact, in our experience, most people do not visit lawyers.  If a Representation Agreement is used to manage routine financial matters, then there must be two Representatives or a monitor must be appointed to safeguard the person if they are vulnerable.

The laws governing legal representation are provincial.  While the federal government has considered implementing a short term solution as proposed by PLAN, their preference is that it be done right by making the appropriate provincial and territorial reforms.  The carry forward rules mean that people will not be penalized while provinces consider changes to their adult guardianship and supported decision-making laws.

What is the solution? Provinces will decide, but the experiences of people with disabilities, families, seniors and others who have used British Columbia’s Representation Agreements have been very positive.

As families know all too well, parents do not live forever.  Regardless of who takes on responsibility for safeguarding a loved one into the future, the options for assisting a vulnerable person with their decision-making is either adult guardianship or Representation Agreements.  Representation Agreements provide the option of giving legal status to people’s support networks, whether those people be family or friends.   In developing long term plans for families, we have found them to be essential tools.

The recent ratification of the UN Convention on the Rights of People with Disabilities provides added incentives for provinces to take another look at the Representation Agreement.

Enabling Accessibility for Persons with Disabilities

The reforms to the RDSP have garnered most of the press but also in Budget 2010, the Government renewed its commitment to helping all Canadians to participate fully in their

communities by providing another $45 million for the Enabling Accessibility Fund.

The importance of accessibility can’t be overstated.  Catherine Frazee likens accessibility to a welcome.  Indeed, as Canadians do we want to leave anyone stranded on our doorsteps, unable to come in and enjoy our hospitality?

This is a commendable commitments.  Most people acknowledge that making Canada accessibility to all citizens will take time.  The commitment to this fund means that the federal government is making Canada accessible building by building, community by community.

To find out more about the Federal Budget 2010 you can visit:http://www.budget.gc.ca/2010/home-accueil-eng.html

To find out more about PLAN’s continuing public policy campaigns you can visit http://www.plan.ca or click here: http://www.plan.ca/sections/campaigns.html

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.

This year the new income levels for 2010 Canada Disability Savings Grant and Canada Disability Savings Bond were announced.  As I mentioned in the post New Income Levels for 2010!, the new income levels to receive the Bond for 2010 are changed every year to account for inflation.  For 2010, if your income is below or equal to $21,947, you are eligible for the full $1,000.  If your income is between $21,947 and $39,065, you are eligible for a pro-rated amount of the Bond.

This leads to the question, what is the formula to determine how much Canada Disability Savings Bond you will receive if your income is between $21,947 and $39,065?

To determine what amount you are eligible to receive, you need to use the following formula:

$1000 – [$1000 * (A-B)/(C-B)]

Where:

A= Family income, B=Lower threshold ($21,947) and C=Upper Threshold ($39,065).

For example, let’s imagine that someone with an income of $35,000 wants to figure out how much Canada Disability Savings Bond they are eligible to receive.

The amount of Bond would be determined by the following:
$1000 – [$1000 * ($35,000-$21,947)/($39,065-$21,947)] = $1000 – [$1000* ($13,053/$17,118)] = $237.47

One of the most common questions I have been receiving lately is “can I transfer my RDSP from one bank to another?”.  Quick answer, Yes.  The legislation does allow for the RDSP to be transfered from one financial institution to another.

Does this mean I can go down to the bank and transfer right now?  Maybe. Maybe not.

Many people I have chatted with have said that they were told by their financial institution that transfers are currently not possible because there is no Government RDSP Transfer Form.  True, currently there is not a Government RDSP Transfer Form (although it will be ready by the end of February 2010), but the Government is capable of accepting transactions from financial organizations opening or closing RDSPs as a result of a transfer.

What does this mean?

It means that financial institutions can electronically submit information to the Government opening an RDSP and have the option to indicate it is part of a transfer.  Once this application is received, the RDSP would have the status of “pending” until the prior RDSP (from the old financial institution) has been closed, at which time the status would change to “registered”.  Note that the old RDSP must be closed within 120 days for the new one to be deemed “registered”.

Financial institutions can also submit an electronic request to close an RDSP, and can indicate that the closure reason is due to a “transfer”.

So why are most financial institutions saying they cannot transfer yet?

As many of you are probably aware, there have been some delays in completing the electronic system requirements around the RDSP, and many financial institutions started off by registering RDSPs manually.  Some financial institutions may not have the electronic systems currently in place to transfer and are waiting for the RDSP Transfer Forms from the Government to come out early this year (probably end of February 2010).

When the RDSP Transfer Forms come out early this year, this should allow all the financial institutions to transfer RDSPs across to another financial institution.  We will post an update when these forms come online.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com

Are you wondering why the income levels to receive the Grant and Bond have changed recently?  Every year these income levels will be indexed to account for inflation.  So, the income levels that receive the Grant and/or Bond for 2009, will be different than those receiving the Grant and/or Bond for 2010.

For those of you who are unfamiliar with how the income levels work, here is a quick refresher.  If you open an RDSP and want to receive money from the federal government, there are two options: the Canada Disability Savings Bond; and, the Canada Disability Savings Grant.  The Bond, designed for people who might not have much to contribute to an RDSP, is based completely on income and does not require any contributions.  The Grant, designed to encourage people to save, is based on how much you contribute into an RDSP, but will also look at your income to determine how much Grant you will receive.

So what are the new levels for 2010?

Canada Disability Savings Grant – If the beneficiary’s family income is less than or equal to $78,130, they are eligible for the full $3,500 in Grant.  If the beneficiary’s family income is more than $78,130, they are only eligible for the $1,000 in Grant.

Canada Disability Savings Bond – If the beneficiary’s family income is less than or equal to $21,947, they are eligible for the full $1,000 in Bond.  If the beneficiary’s family income is between $21,947 and $39,065, they are eligible to receive a pro-rated portion of the bond every year.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com

As many of you probably are aware, throughout our discussion we have consistently tried to provide a clear explanation of the type of payments that you are allowed to take out of an RDSP. To see what type of payments the plan allows, you can view the post Payments from an RDSP: An Effort to Make it Understandable.  In today’s post I want to highlight that although the legislation and regulations allows for all of these payments to be withdrawn from the plan, it only requires financial institutions to provide the formula payments (or Lifetime Disability Assistance Payments).  Again, a financial institution does not have to offer lump sum payments to come out of the plan if they do not want to.

This is why, in the post “Mapping your Plan“, we highlight the importance of running through with your financial advisor how you want to use the plan.  By doing so, you can find out then and there whether you are allowed to take out lump sum payments.  If you find out that they do not allow lump sum payments and you wanted to be able to take out lump sums, then you may want to look at another financial institution.  Currently the only bank which has verified that they allow all types of payments is the Royal Bank of Canada.  In all likelihood many of the other banks will most likely allow all types of payments but it will be important that you find this out when planning for your RDSP, as we have heard of a few financial institutions restricting lump sum payments.

This probably won’t be an issue for many people, as I expect a lot of people to simply take out the formula payments (lifetime disability assistance payments), but for those who are using the RDSP differently, you will want to verify this option.

Today, in a ceremony in Vancouver Al Etmanski the Co-Founder and President of Planned Lifetime Advocacy Network (PLAN) was named as a first torchbearer for the 2010 Paralympic Torch Relay.

“For its first Paralympic Torchbearer, RBC selected Al Etmanski, an author and co-founder of Planned Lifetime Advocacy Network (PLAN), which was instrumental in advocating for the new Registered Disability Savings Plan and assists families across Canada and globally in addressing the financial and social well-being of relatives with a disability.

Graham MacLachlan, regional president, RBC, British Columbia, said: “Al Etmanski has long demonstrated his commitment to helping people with disabilities and their families succeed through his work as an advocate and social entrepreneur. RBC is proud to select him as our first Paralympic Torchbearer on this historic relay.”

To view the press release in its entirety visit: http://www.newswire.ca/en/releases/archive/November2009/27/c5788.html

To apply to be a Paralympic torchbearer visit: http://www.yougottabehere.com/

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.

Canadians can now visit all 5 national banks and open up a Registered Disability Savings Plan.  Scotiabank came out today and began offering their version of the RDSP to their clients.  Similar to many of the other banks, Scotiabank will be offering a range of investment options, including Cash/Savings, GIC’s and Mutual Funds.

Scotiabank has joined Royal Bank of Canada, Bank of Montreal, CIBC, and TD Canada Trust in supporting this program for people with disabilities.  To find out more about opening an RDSP with Scotiabank you can visit their website at http://scotiabank.com/cda/content/0,1608,CID13346_LIDen,00.html or call Scotiabank Wealth Management Contact Centre at1-877-929-4499 and talk to one of their investment specialists.

If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.

Are you hoping to get the 2009 Grant for your Registered Disability Savings Plan?

Many of you will remember that to get the 2008 Grant deposited into your RDSP you had to make sure to contribute by March 2nd, 2009.  Notice – This was unique for 2008 Grants.  For 2009 Grants, you will be required to contribute by December 31st, 2009.  If you do not contribute before this time, any contributions you contribute in 2010 will be for 2010 Grants and will not be applicable to 2009.

Why has the deadline for Grants changed from 2008 to 2009.  As many of you may recall, the 2008 contributions were originally supposed to be received by December 31st 2008 in order to get the 2008 Grant.  As BMO was the first bank to offer RDSPs, and did not begin to offer them until late in December of 2008, that left little time to get your RDSP set up and your 2008 contributions in.  In response, the Finance Minister extended the deadline to March 2nd, 2009 to make sure there was enough time for people to open a plan and contribute for 2008.

This was for 2008 only! Make sure to contribute every year by December 31st to get your Canada Disability Savings Grant for that year.

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