RDSP's in Canada
Registered Disability Savings Plans
What is an RDSP and how can it help?
A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit (DTC). For individuals with type 1 diabetes (especially young adults who are no longer covered by their parents’ extended health care, but do not yet have a stable job which includes extended health insurance), it can make a big difference in their lives to have money saved to cover necessary expenses (BG monitoring and pump supplies, insulin and other medication costs, travel expenses for medical appointments or treatment, private health insurance costs, etc).
Benefits of an Registered Disability Savings Plan (RDSP)
The bonus of saving for these future needs within an RDSP is the significant government grants and bonds which are available. To encourage us to save for future needs, rather than relying on other government programs, skimping on medications or supplies when we can’t afford them, or falling into poverty due to higher expenses needed to manage a chronic health condition like type 1 diabetes, the Government of Canada offers the following incentives for holding an RDSP:
- The Canada disability savings grant (CDSG) is an amount that the Government of Canada pays into a registered disability savings plan (RDSP). The Government will pay matching grants of 300%, 200%, or 100%, depending on the beneficiary’s adjusted family net income and the amount contributed. That means, at the 300% matching grant level, if you put in $1000, the Government of Canada will kick in $3000. If eligible, that’s the best free money out there!
- The Canada disability savings bond (CDSB) is an amount paid by the Government of Canada directly into an RDSP. The Government will pay bonds of up to $1,000 a year to low-income Canadians with disabilities. No contributions have to be made to get the bond. The lifetime bond limit is $20,000.
For examples of these government incentives, and tips on how to maximize the CDSG and CDSB, see this downloadable and printable RDSP brochure, prepared and made available to Waltzing the Dragon readers by Daryl R. Burd, D-Parent and Investment Advisor (TD Wealth Private Investment Advice).
How do you open an RDSP?
The plan holder is the person who opens the RDSP (the person with diabetes or, for minor children, their parent or guardian) and makes or authorizes contributions on behalf of the beneficiary.
To open an RDSP, a plan holder must contact a participating financial institution that offers RDSPs. These financial institutions are known as RDSP issuers. Daryl Burd, through TD Wealth, can assist you with opening an RDSP for yourself or for your child, or you can contact any other RDSP issuer of your choosing.
Can I Claim the Value of My Contributions on my Tax Return?
Contributions to an RDSP are not tax deductible, however money that is withdrawn is not included as income to the beneficiary when it is paid out of an RDSP. (Note that the grant and bond funds, as well as investment income earned in the plan, are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP.)
Do we ever have to repay grants and bonds?
10-Year Repayment Rule
It’s important to note that government grants and bonds will be “clawed back” if the funds aren’t left in the RDSP for 10 years, or if the beneficiary stops being eligible for the disability tax credit (DTC) and an extension is not requested by the plan holder. In this case, all government grants and bonds paid into the plan during the preceding 10 years must be repaid to the Government of Canada. See the Revenue Canada RDSP website for conditions under which repayments are required.
In short, it’s wise not to count on the grant/bond money in the plan until those funds have been in the RDSP for 10 years.
Where can I get more information on RDSP’s?
- See the Revenue Canada website, RDSP section
- Contact Daryl Burd, parent of a young adult with diabetes, and Investment Advisor with TD Wealth – he would be happy to answer your questions and help you establish an RDSP for your T1D child.
Note: Daryl is located in Edmonton but has many clients at a distance – feel free to contact Daryl (his contact information is given at the top of the RDSP brochure) to see how he can help your family, wherever you are.
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