An RDSP Case Study:

Why Registered Disability Savings Plans (RSDP) Need To Be Taken Seriously

By Jennifer Clyne

 
 

Did you know?

Only 15% of the roughly 643,000 Canadians between the ages of zero and 59 who are eligible to open an RDSP have done so? 

Did you also know?

That if you are eligible you can receive grants up to $70,000 and bonds up to $20,000 over your lifetime? 


Why are so few people taking advantage? 

1.  Misconceptions

 
Low income earners can’t afford an RDSP
 
  • The fact is if you are a low income earner you are eligible for the Canada Disability Savings bond amounting to $1000 per year up to a lifetime maximum of $20,000. You don’t even have to contribute to receive it. 
     
  • If your family net income is less than $87,907, the government will give $3 in grant for every $1 contributed on the first $500, up to $1,500 in grant per year, plus $2 in grant for every $1 on the next $1,000 contributed, up to $2,000 in grant per year. This adds up to $3,500 in grant money on an annual contribution of only $1,500! For families whose net income is more than $87,907, the government will give $1 in grant money for every $1 contributed on the first $1,000, up to $1,000 in grant money.
     
  • Anyone can contribute to an RDSP for a beneficiary with written permission. For example, if the parents can’t afford to contribute the Grandparents may want to.

2.  Lack of Promotion

It is hard to find an advisory team that offers RDSPs. The administration behind these plans is significant. Plus they aren’t as simple as other registered accounts, so many advisors fail to understand them and don’t even offer them. Due to the lack of promotion of RDSPs through financial institutions the public lacks an understanding them, and is missing out on huge support from the government. 

 

Advantages of RDSPs

•    Estate and tax planning advantages
•    High level of matching from the government
•    Free bonds for low income beneficiaries
•    Contributions are passed on tax free to the beneficiary

Who is eligible for an RDSP?

•    You must be eligible and approved for the federal Disability Tax Credit
•    You must be a Canadian resident
•    You must be under 60

 

Case Study

Rose is the mother of a 43 year old woman named Lexi. Lexi has been eligible for the federal Disability Tax Credit for over 20 years. Rose came into The Tycuda Group office to discuss planning for her and her daughter. Rose feared what will happen financially for Lexi when Rose passes away. While Lexi is fully eligible for an RDSP she has never applied for one. Rose hadn’t helped her daughter apply for many reasons, but primarily she didn’t think she could afford the plan as Rose was currently making ends meet on a small pension. She also found RDSPs very confusing and struggled to find the right answers from advisors she had met with in the past. Rose was immediately interested in an RDSP for Lexi when we explained to Rose the benefits and how they could help with the financial burden, as well as calm fears of what will happen when Rose is not around. So, the Tycuda team went through the process of figuring out how to max out the plan for Lexi to receive catch up grant money for the years she missed. The result was that Rose could contribute in the following way to Lexi’s RDSP to maximize her grant funding:

2015: Contribute $3,500 and receive $10,500 in total grant
2016: Contribute $4,750 and receive $10,500 in total grant
2017: Contribute $5,000 and receive $10,500 in total grant
2018: Contribute $3,250 and receive $7,000 in total grant

In addition, because Lexi is a low income earner she is eligible for bond money going back 8 years, and will receive an additional $8,000 with no matching contribution required.

This works out to be $16,500 in contributions over 4 years, plus $46,500 in grant and bond money, for a total account worth $63,000 in year 2018. This doesn’t take into consideration any growth that could be made on the assets over that 4 year period. After 2018, she would be completely caught up, and would just need to contribute $1,500 annually to receive full government incentives of $3,500 in grants and $1,000 in bonds each year.  

Hands down, if eligible, an RDSP is the BEST way to save for the future needs of someone with a disability.