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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)

Once again, I will try and do the impossible and explain the types of payments you can take out of an RDSP in a clear and understandable way.  For any of you who have been visiting this blog often and following the progression of the RDSP, you know that this is not an easy task.  The terminology and formula’s associated with payments from an RDSP often create confusion amongst people trying to learn about the plan.

So, wish me luck.

In this post I will refrain from using the official terminology of Disability Assistance Payments (DAPs) and Lifetime Disability Assistance Payments (LDAPs), and instead break down the different types of payments into 5 categories or scenarios.  I will define what I mean by the “10 year rule” for those of you who are unfamiliar.

Definitions

10 year rule = if you receive any payments from the federal government in the form of the grant or bond, you will need to wait at least 10 years after the last grant or bond has been received before you start withdrawing from the plan.  If you decide to withdraw before this ten year waiting period is up, you will have to pay back any grant or bond that has been received in the last ten years (not including interest).

Payment formula = some payments out of the RDSP must come out as determined by a formula.  This formula (simplified) is “Total Amount in the plan” / divided by “Years expected to live”.  ** Note that this is not the full formula, just a simplified version for clarity.

The Five Ways You Can Receive Payments:

1) No Federal Contributions: If someone opens up an RDSP and only contributes their own money into the plan (or the money contributed by friends and family) there are no restrictions on when you can withdraw from the plan or how much.  Once you turn 60 years of age, minimum annual payments will need to start coming out of the plan, but you are still allowed to take out as much as you want, whenever you want.  In this scenario you do not have to worry about the assistance holdback amount (or as we call it, the ten year rule).

Example – David decides that he will only put in his own money and deposits $15,000 at the age of 52.  David could withdraw payment from the RDSP at any time and in any amount.  At the age of 60, formula payments would begin coming out of the RDSP, but David could still take out larger amounts.

2) Annuity: If you would like to have even payments paid out over your lifetime, there is a provision in the legislation to allow for annuity payment.  An annuity is where you make a lump sum payment to a financial institution who then pays you income for the rest of your life.  In this case, you must still be conscious of the 10 year rule.

Example – Sarah’s family opened up an RDSP for her when she was 10 years old and contributed $1,500 every year.  Once Sarah turned 40, she wanted to receive the same amount in payments every year and took out an annuity from a life insurance company that pays her $7,000 a year.

3) More Personal Contributions than Federal Contributions: If you (and friends and family) have put in more contributions into your RDSP than the federal government, you are allowed to take out lump sum payments above and beyond the formula.  These lump sum payments will not start an annual payment and can be received before the age of 60.  Once you reach the age of 60, minimum payments as determined by the formula above will begin to come out annually, although you can still take out lump sums larger than the amount determined by the formula.  You will still need to take into account the 10 year rule for these payments.

Example – Katy and her friends were able to contribute $100,000 over 30 years by the time she was 45 and received $70,000 in federal Grant.  Katy decides at 45 that she wants to take out $30,000 towards a down payment on an apartment.  She withdraws the payment without causing an annual payment to occur.

4) Less Personal Contributions than Federal Contributions: If you have contributed less than the federal government into your RDSP, you can never take out payments that exceed the amount determined by the formula.  With this type of payment you must always take into account the 10 year rule.  Within this scenario there are three options:

  • You wait until 60, at which point payments determined by the formula are paid out each year.
  • You decide you want to start receiving payments before the age of 60, and you start the annual payments early.  Ex. John decides at 55 he wants to start receiving annual payments determined by the formula, and thus instigates these payments.
  • You decide you want to receive a one-time payment that will not instigate annual payments (between the ages of 27 and 58).  Because you have contributed less than the federal government, you can take out a one-time payment but it cannot exceed the amount determined by the formula.

Example – Since he turned 19, Tim has only ever received the $20,000 in Federal Government Bond.  Tim decides at the age of 56 that he wants to start receiving payments from his RDSP.  At this point, payments as determined by the formula begin to come out every year.

5) Shortened Life Expectancy: If the person has a shortened life expectancy (within 5 years) the formual does not apply and they can take out payments of any size.  ** Must still adhere to the 10 year rule.

Example – Connie had an RDSP set up for her when she was 10 years old, and her parents have deposited $1,500 into her account every year for 10 years allowing her to get $35,000 in Grants.  At 30 years old, Connie finds out she has less than 5 years to live.  Her doctor certifies this diagnosis for the Canadian Revenue Agency, and Connie starts taking out payments of any size from the plan.

Important – It is up to the financial institutions as to whether they will allow lump sum payments (other than the formula payments) to come out of the plan.  It is important that you speak with your financial institution and make sure they allow you to take out these types of payments if this is how you want to use the RDSP.

The end.

Please let me know if this explanation is clear and understantable.  If it is not, I will keep trying until it is.  Thank you again to everyone for all your feedback.  I hope this has been helpful.

Safe and Secure: RDSP Edition

Safe and Secure available at London Drugs! 

As of April 1, families across BC can walk into any London Drugs location and pick up your free copy of Safe & Secure at the pharmacy. This family-to-family guide outlines the 6 steps to creating a good life for people with disabilities.  Safe and Secure offers helpful information related to disability benefits, taxation, trusts, Representation Agreements, wills, estate planning, and the new RDSP. 

If you live in BC and would like a free copy of Safe and Secure: RDSP Edition click here to find the London Drugs location nearest you.

Although this version of Safe and Secure: RDSP Edition is specific to British Columbia, PLAN is looking to develop editions for other provinces.  We will keep you updated of any developments. 

Now that the RDSP is a reality and financial institutions are beginning to offer it for sale a major challenge is beginning to surface.

Parents are encountering an impediment to opening an RDSP for their adult sons and daughters.  The legislation states the beneficiary of an RDSP can be opened by an individual with legal capacity or the adult’s legal representative. 

Most of us are not legal guardians of our adult sons and daughters nor do we want to be.  Becoming guardian is a costly, intrusive and cumbersome process.  BC has Representation Agreements, but this tool is not available in other provinces.

PLAN is working with the Federal Government, financial institutions, provincial Public Guardian Offices and leading disability groups to remedy this situation.

We are seeking a way for parents to be Account holders of the RDSP jointly with their relative with a disability without having to become legal guardian.

Please stay tuned to this blog or sign up for our regular RDSP bulletin at http://www.rdsp.com .

To find out about the RDSP, whether you qualify, and where you can sign up, visit www.rdsp.com .

Now that it looks like the Bank of Montreal will become the first national bank in Canada to offer the RDSP, and will most likely start offering RDSPs on December 22nd, many people are wondering whether their is any opportunity to receive the Grant and Bond retroactively (until June 2009).  With the shortened time period (December 22nd to December 31st) to get your RDSP set up and your contributions in for 2008 (to leverage the 2008 Grant and Bond), this idea of the retroactive 2008 Grant and Bond has been proposed by a number of people interested in the RDSP.  

So what is the likelihood?

From what we have heard, the likelihood is not that great (although, you never know).  With the limited number of Financial Institutions offering the plan, and the desire of many people not to miss out on the 2008 Grant and Bond, it seems to make sense.  Where it starts to get tricky is when we start to look at exactly what would need to happen in order for this type of change to occur.  Allowing for a retroactive Grant and Bond would require a change in Regulations, which is not a quick or easy process and would require either pass through Cabinet or Ministerial amendment.  Financial Institutions would also have to modify some of their systems to account for this change in policy.  This is not to say that it won’t happen, but that it may be a longshot.

There have been some efforts to push for this retroactive Grant and Bond, and there still seems to be a little steam behind these initiatives, but for the time being you should assume that this retroactivity will not be available.  We will make sure to track this discussion and update everyone as soon as we find out anything.

If you want more information on how to set up an RDSP with BMO you can call their BMO Investment Centre at 1-800-665-7700.

The Registered Disability Savings Plan is now an official Canadian Registered Plan and can be issued by Financial institutions across Canada.  The RDSP promises to be a life-changing future planning tool for hundreds of thousands of Canadians with a disability, and we are excited that this has become a reality.  We see the RDSP as an opportunity for families and individuals across Canada to greatly increase their future financial security and quality of life.

Planned Lifetime Advocacy Network (PLAN) is also excited to announce the launch of our new website www.rdsp.com .  This website is the go-to website for any information relating to the RDSP, including financial updates, provincial treatments, details and analysis, stories, the new RDSP Calculator, and much more.

National and Provincial Update

The Provincial Governments of British Columbia, Newfoundland, Alberta, Saskatchewan, Manitoba, Ontario and Yukon have all fully exempted the RDSP from affecting Disability Benefits as an asset or income.  This is a very exciting development as it means that Canadians in all of these provinces will be able to fully benefit from the RDSP.  Quebec and New Brunswick have exempted the RDSP as an asset, but only partially exempted the income coming out of the plan ($300 per month exempt – QB, and $800 a month – NB).  Visit www.rdsp.com for more detail.

Nova Scotia, Prince Edward Island, Northwest Territories and Nunavut have yet to announce the treatment of the RDSP for those receiving Disability Benefits, but are expected to announce in the next few months.  Keep checking this blog and our new website www.rdsp.com for updates on these provinces/territories.

Financial Update

Currently, Fédération des médecins omnipraticiens du Québec (Quebec Federation of General Practitioners) is the only financial institution that has signed an agreement with the Federal Government to offer the RDSP.  FMOQ has indicated that it will offer the RDSP to its members (general practitioners) and their patients, and anyone referred to them by financial institutions who do not offer the plan (Québec residents only).  To learn more visit: http://www.fmoq.org/Accueil/Accueil/Index.aspx  

Currently no other national or regional financial institutions are issuing the RDSP.  A few other financial institutions are expected to be ready to issue the RDSP in the next few months.  Please check www.rdsp.com or this blog for updates on financial institutions.

We would like to thank the Federal Government of Canada, the Provincial Governments who have come out in support of the RDSP, and the large number of people across Canada who have advocated and supported the plan throughout its development and implementation.  We believe this plan has the potential to change lives of hundreds of thousands of people across Canada.

If you are interested in setting up an RDSP, visit www.rdsp.com for details on the plan, instructions on how to set up the plan and other helpful tools and links.  

For ongoing updates and to support PLAN in our ongoing advocacy work, sign up for free and receive RDSP related materials and information at www.rdsp.com

Reminder: if you are new to this blog and want a detailed description of the RDSP please click on the header under “RDSP FactSheet” or refer to the September post entitled “Review of the Registered Disability Savings Plan”.

One of our regular commentators on this blog asked a really good question that I am beginning to hear more and more.  “In light of the global economic crisis and speculations of a possible recession in Canada, will there be an impact on the launch of the RDSP or on the RDSP itself?”

As I mentioned before, the answer to this question is no (but let me expand on this).  The unique thing about the RDSP is that it requires a few major players to ensure its successful launch in December.  These players are the Federal Government, Provincial Governments, Financial Institutions, and community organizations.  

So what is each players role in this process and how does the financial crisis affect their involvement with the RDSP?

First, the federal government passed the Canada Disability Savings Act, amended the Income Tax Act, and prepared the Budget and Economic Statement Implementation Act, 2007, which will come into affect on December 1st, 2008.  The Federal Government has also prepared agreements for Financial Institutions who are interested in issuing RDSPs.  It looks like the Federal Government is on track to reach the December 1st launch date and that the economic crisis will not affect the Federal launch of the RDSP.

The provincial governments are an important piece of the puzzle because, for those receiving Disability Benefits from their province, it will be essential that their provincial government exempts the RDSP from affecting any income or assets tests.  Currently, BC, Newfoundland, Yukon and Saskatchewan have all fully exempted the RDSP from affecting Disability Benefits.  We have heard that most of the provinces will be announcing their treament of the RDSP on Disability Benefits before the December 1st launch, but it will be important for people to be aware of how their province treats the RDSP before they set one up (check this blog for updates).  For most provinces to accomodate the RDSP simply requires a amendment/addition to the provincial income assistance/disability assistance regulations, and therefore we expect all the provinces to have announced their treatment of the RDSP by December of this year.  Although the financial crisis might distract  and delay a few provincial governments from making an announcement on the RDSP, we expect that most if not all provinces will make this accomodation to their regulations in time for the launch. 

When it comes to financial institutions and the RDSP, the financial crisis should not be too much of a concern.  We have heard that there are between 14-16 financial institutions across the country that expressed an interest in issuing the RDSP and that this number would grow in the first year.  With the financial crisis creating uncertainty and the Tax-Free Savings Account becoming available in January, most financial institutions do have a lot on their agenda, but we have received indications that some financial institutions will be ready for the start date in December.  As soon as this information becomes public we will be posting the list of financial institutions offering the plan, and provide comparisons for the types of plan that each is providing.

Community organizations are going to be important when it comes to communications and outreach around the RDSP.  As the Tax-Free Savings Account will be taking up much of the outreach resources of financial institutions and we expect their to be limited communications to consumers, it will be extremely important for community groups and governments to spread the word and provide information for those who may be able to take advantage of the RDSP.  The federal government will be doing some communications and outreach on the RDSP, but to reach everyone who is eligible will require the efforts of all those involved.

We will continue to keep you posted on what is happening with the financial institutions in preparation for the roll-out in December of this year.  Make sure to regularly check our blog for these updates.

With the serious possibility of an election in the Fall many people are wondering whether this will impact the launch of the RDSP in December. There are a few reasons why the upcoming election should not concern people who are planning to set up an RDSP in December.

1) The RDSP received Royal Assent in December of last year and is solidified in the Income Tax Act and Canada Disability Savings Act. Unlike a Bill that is still in First or Second Reading in front of the House of Commons, the RDSP has already passed through the political system and has been entrenched in Canadian legislation.

2) The Federal Government, including the Department of Human Resources and Social Development, Finance Canada, and the Canadian Revenue Agency, are all in final preparations for the launch in December and are continuing to work with financial institutions to make sure it is available to Canadians before the end of this year.

3) All three parties have been supportive of the RDSP and have indicated that it is a powerful and important plan for Canadians facing the challenges of living with a disability.

Not including BC, Newfoundland and Yukon (who have all already exempted the RDSP), many provinces/territories are in the midst of deciding how the RDSP will affect someone who is receiving Disability Benefits. We decided to put together a Top 10 list of why we think it is important these provinces/territories exempt the RDSP as an asset and income. If you have any reasons you would like to include feel free to post a comment and add to our list.

TOP 10

1. Poverty reduction – Governments cannot provide for the future financial security and social well-being of people with a disability on their own. Governments need to begin forging a new relationship with families to enable and encourage their contributions. As many new programs such as SEDI’s Independent Learning Accounts (ILA’s) are demonstrating, the ability to accumulate assets and save for the future has a direct impact on poverty reduction. In fact, when the Newfoundland Government decided to exempt the RDSP from asset and income tests, they made this decision as part of their Provincial Poverty Reduction Strategy (click here).

2. Positive Messaging – Exempting the RDSP as an asset and income would send a strong message to families that Provincial Governments understand their ability and determination to help their family member or friend with a disability. Allowing the full benefits of the RDSP would go a long way towards rebuilding trust between government and communities, and stimulate a positive partnership between the two. Families and friends of people with disabilities need to begin planning beyond their lifetime and need the security of clear public policy that underlines provincial governments’ willingness to help.

3. Establish a New Vision Exempting the RDSP would help establish a new vision that acknowledges the huge contribution that people with disabilities have to make to the community. Allowing people with disabilities and their families the opportunity to contribute towards their own well-being will go a long way towards eradicating the notion that people with disabilities have little to contribute. Increased financial security will encourage people with disabilities to enter into the community and participate in activities, employment, volunteering, education, etc.

4. Equality – British Columbia, Newfoundland, and Yukon have all exempted the RDSP from any asset and income tests. If other provinces/territories do not fully exempt the RDSP from their own asset and income tests it will prove to be a disadvantage and unequal treatment of people with disabilities in other provinces/territories.

5. Family Resiliency – Often there are significant restrictions and penalties around familial support directed towards a person with a disability receiving Disability Benefits. Families and friends who are in a position to help are often unable for fear they will disqualify their loved one from receiving their much-needed supports. Exempting the RDSP would promote the resiliency of families/people to solve some of their own problems, especially for a marginalized disability population that has significantly higher costs for daily living.

6. Future Government Savings and Revenues – The RDSP will generate future government program savings and revenues as people with disabilities become more secure financially. The residual effects of allowing people with disabilities to save for their future will alleviate some of the strain from government supports and programs.

7. Maximizing Federal Contributions – The RDSP provides no cost to provincial governments and has the potential to leverage huge amounts from the federal government. By accommodating the RDSP provincial governments can inject a significant amount of money into their respective disability community without raising their costs for programs and supports.

8. Encourage Home Ownership – For many people with a disability the likelihood of ever owning a home is pretty remote. With many of the current provincial welfare systems discouraging the accumulation of savings or employment, many people with disabilities will have to remain in institutions or group homes. This is worrying considering the majority of Canadians view owning their own home as one of the essential determinants of their social and financial well-being. The RDSP provides people with disabilities the opportunity and incentive to save for a home, and in realizing this dream, become more active and involved in the community.

9. Financial Literacy – In most provinces the legislation and regulations surrounding those receiving disability benefits is convoluted and complicated. Simply trying to understand all the rules and regulations associated with supports and programs is arduous, time-consuming, and often impossible to manage. Providing a full exemption of the RDSP will simplify the process of understanding the plan and will ensure everyone who is eligible for the RDSP can benefit from it. If provinces fail to exempt the RDSP many individuals and families will simply refrain from setting one up as they do not want to be disqualified from receiving disability benefits.

10. Community Support – The support for a full exemption of the RDSP is immense and spans across the country. Any province that takes this monumental step will receive widespread support for their position and will solidify themselves as an example of a forward-thinking government which understands the needs for new solutions in an ever-changing societal and political environment. As we have seen in BC, Newfoundland, and Yukon, provincial governments who exempt the RDSP are receiving well-deserved praise and support for their efforts to move the disability agenda in a positive and progressive direction.

Yet another article has come out encouraging Ontario to exempt the RDSP. This time written by Mike Burke-Gaffney of the Toronto Sun and entitled Will Dalton Do the Right Thing? Federal plan to help families with disabled children hinges on Ontario’s co-operation. With MPP Sylvia Jones’ Bill 94 gaining momentum and past the 1st reading in the Legislature, and more and more columnists and organizations coming out in support of an exemption of the RDSP in Ontario, it will be interesting to see what the response is from the Provincial Government.

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