A couple of months ago I was at a seminar presentation in Montreal on the subject of Registered Disability Savings Plans (RDSPs). A grand total of 7 people (and that included the instructor!) were in attendance. From the instructor’s perspective, the attendance spoke volumes about the state of awareness of the RDSP.
The RDSP is a long-term savings program best viewed as a vehicle for generating additional cash flow later in a person with a disability’s life. There are two parties to an RDSP: the Planholder and the Beneficiary.
The most important point regarding the RDSP is that, in order to open a plan, the Beneficiary must be eligible for the Disability Tax Credit (DTC). Moreover, the RDSP will make sense mostly for those who not only are eligible for the DTC today, but are expected to continue to be eligible well into the future. This reflects the fact that becoming ineligible for the DTC may lead to repayment of government grant and bond money paid into the plan.
Where the Beneficiary is under 18 years of age the Planholder would be a legal parent. However, if at the time the RDSP is opened the Beneficiary has attained the age of majority, the Beneficiary would also be the Planholder except where they do not have legal capacity.
In some aspects, the RDSP resembles the Registered Education Savings Plan (RESP), in that there is a lifetime contribution limit ($200,000), and contributions up to certain limits generate Canada Disability Savings Grants (CDSGs).
The grant amounts that will be paid are determined based on family income, but starting from when a Beneficiary attains 18 years of age, it is their income that determines the CDSG paid. For 2018, where family income was up to or less than $93,208, CDSGs are paid at 300% on the first $500 contributed and 200% on the next $1,000. For family income above that limit, the grant amount is 100% on the first $1,000 contributed. Unused CDSG grant room carries forward into future years, however, a Beneficiary is only eligible to receive CDSGs until the end of the year they turn 49.
It is also possible to qualify for a Canada Disability Savings Bond (CDSB) of up to $1,000 annually in situations where family income is low enough to meet certain thresholds. For those who qualify, the payment of these bonds requires only the opening of an RDSP: contributions are not required.
To underscore the fact that the RDSP program is intended for long term savings, for every $1 of money withdrawn from an RDSP, $3 of CDSG/CDSB money paid into the plan in the 10 years preceding the withdrawal must be repaid. Ideally then, the best strategy with an RDSP is to ensure that there is at least a 10 year period that passes from the last contribution to when money is drawn out.
Payments (referred to as Lifetime Disability Assistance Payments, or LDAPs) must start to be made from an RDSP by the end of the year the Beneficiary turns 60. There is a maximum annual payment amount determined by government formula.
From an investment perspective, you have the same investment choices with an RDSP as you do with an RSP or TFSA. Regrettably, the number of RDSP providers is not nearly as large as those providing TFSAs, for example.
Through Scrivens, we are able to offer RDSPs through some of the mutual fund companies we represent, for example, Mackenzie Investments.
The RDSP can be an excellent vehicle for building long term savings for persons with disabilities. Should you either be someone, or know someone who would qualify for the program, we would suggest setting up a meeting with a Scrivens Advisor to look at your specific situation, and get the benefits working for you.