We are all aware of families who have children and adults with disabilities, but most of us are unaware of programs designed to financially assist those individuals as they age beyond their earning years. Most individuals with disabilities may have careers but most won’t have earnings that would allow them to retire with a pension. The Registered Disability Savings Plan RDSP would provide that option and would assist to bridge the gap to a more modest income. This program is under-utilized primarily because there is not much information for the plan at the branch level of financial institutions. I encourage all that read this article to reach out and discuss with the parent, guardians, spouses, or even grandparents that this federal program exists that should be part of any financial and estate planning process. The deadline for a parent or guardian to open a RDSP for a minor child is December 31, 2018.
RDSP is a federal tax deferred savings program for qualified beneficiaries who may be minors and is available for contributions to age 59. Early contributions prior to the beneficiary turning 50, includes the benefits of grants and bonds to the plan. RDSP accounts enjoy deferred taxation on growth of deposits made to the plan. The plan assists parents of disabled dependents to save for long term financial security.
Life time contribution limits on RDSP is $200,000*
Prior to the beneficiary turning 50 years grants are up to $3500 for each $1500 deposited to the plan*
Additionally, low income families would be eligible for a bond up to another $1000 per year*
Lifetime Grants and bonds available to those under 50 years is $90,000*
What is a Canada disability savings grant? The grant is an amount that the Government of Canada contributes to an RDSP. The government will pay a matching grant of 300%, 200%, or 100%, depending on the beneficiary’s family income and the amount contributed.
Planning point…RRIF or RRSP of family members can designate the RDSP as a beneficiary of their plan. Rollover contributions of up to $200,000 can be transferred into a RDSP . This amount will be included as part of life time maximum contribution to the plan. *
Contributions to the plan are not tax deductible and are therefore not included in income when withdrawn. Only the grants and bonds and growth of the principal are included in income when withdrawn from the plan.
From many sources that I have researched it appears only a fraction of those eligible as beneficiaries to RDSP’s have opened a plan.
The money can really add up: A low-income family contributes $1,500 a year for 20 years to an RDSP for a total contribution of $30,000. If the maximum $90,000 of federal grants and bonds are received in those 20 years and the plan is in place for another 10 years (to avoid any repayment issue), an RDSP could grow to be worth between $400,000 and $500,000, assuming a modest return of 4.5 to 5 per cent per year over the 30 years. This calculator is designed to make it easier to understand how money in an RDSP can grow over time.
If you want to know more about RDSP make an appointment with any of our Financial Advisors at Infinity Wealth, we will be glad to help.
This information has been prepared by Mark Nichol, David Storrie and Roy Collings who are Investment Advisors for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. iA Private Wealth is a division of Industrial Alliance Securities Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisors can open accounts only in the provinces in which they are registered. CV Infinity Wealth is a personal trade name of Mark Nichol, Roy Collings, and David Storrie. For more information about iA Private Wealth, please consult the official website at iaprivatewealth.ca.