By Sheryl Smolkin
Read this article and comments at Moneyville.ca
Mark Ewer thinks the Registered Disability Savings Plan he set up for his autistic 29-year-old son Paul at the Meridian Credit Union is a great deal. The federal government contributes $4,500 a year and the accumulated savings do not result in a clawback to the support of about $800/month Paul receives from the Ontario Disability Support Program.
First available in 2008, an RDSP is a long term savings plan to help Canadian residents under the age of 60 and eligible for the Disability Tax Credit to save for the future.
To help people with disabilities and their families save, the government pays a matching grant of up to $3,500/year on contributions and a Canada Disability Savings Bond of up to $1,000/year into the RDSP of low and modest income Canadians. The maximum limit on lifetime government contributions is $70,000. There is no annual contribution limit for plan holders, but the lifetime contribution limit is $200,000.
Contributions are not deductible, and the grant, bond and investment income earned in the RDSP will be included in Paul’s income for tax purposes when paid out. Tax is not payable when original contributions to the RDSP are withdrawn.
Ewer contributed $1,500 when he set up the plan in March 2010. With government grants and investment earnings, the account was worth $7,400 on June 30, 2011. Since Paul is over 18, eligibility for grants and the ODSP is based on his income, and not that of his parents. As a result, he is eligible for maximum matching and the full bond.
Because many people are not yet aware of the program, anyone who opens a plan before 2018 can make contributions back to 2008, and receive government grant and bond amounts for previous years. To get the government catch up contributions, Ewer recently made an additional back contribution of $3,000 for 2008 and 2009.
Jitendra Taneja is a financial services advisor at Meridian Credit Union in Hamilton who specializes in setting up RDSPs. While there are no restrictions on how RDSP funds can be invested, he advises plan holders to make prudent investment decisions as part of their overall estate/financial planning.
“Plan withdrawals must start by the year the beneficiary turns age 60 or he no longer is eligible for the disability tax credit, and required minimum withdrawals are based on a formula established by CRA,” Taneja explains.
Grants and loans revert to the government if they are withdrawn before 10 years after they have been deposited. Therefore, he suggests that plan holders make no withdrawals for ten years after receiving the maximum grants of $70,000.
Because Paul cannot have more than $5,000 in assets or he will lose his ODSP payments, Ewer is relieved that RDSP savings are exempt from this draconian restriction.
“We have a decent family income and we make sure Paul has extras like a cell phone, and a decent computer and cable TV he otherwise would not be able to afford,” says Ewer. “But he has a normal life expectancy, and when we are gone, we want to make sure he can continue to afford some of the things that give him so much pleasure.”
To ensure the plans are meeting the needs of Canadians with severe disabilities and their families, Finance Minister Jim Flaherty announced the launch of the federal government’s review of RDSPs in early October.
The government is inviting stakeholders to comment on RDSPs to ensure that the plans are meeting the needs of Canadians with severe disabilities and their families.