If you or someone you care about has a disability and is under age 50, this article will be of great interest to you!
First, let me clarify what “someone with a disability” means. For this program, you fit the definition if you have been approved by Canada Revenue Agency for the Disability Tax Credit (DTC). I spent some time last spring making sure those who I thought would qualify indeed get approved for the DTC so that they could qualify for this new savings program.
I also recently met with a tax client who is fully employed, but recently qualified for the Disability Tax Credit. We spent some time talking about this new savings program and he will participate from now to age 49 as part of his retirement savings plan.
First, let me introduce the Registered Disability Savings Plan (RDSP) to you. It allows the plan holder (individual or parent) to save up to $200,000 in a tax-deferred account up to age 59. You’ll notice at the top of the article I referenced someone under 50. That’s because after the last contribution is made, you need to wait 10 years before making any withdrawals. For most that would be up to age 49, then wait 10 years and start withdrawing at age 60.
Here’s the best part about this plan: the Canada Disability Savings Grants and Bonds. For many the reason to set up these plans is the financial assistance from the government. The assistance comes in two ways: an income-tested matching Grant and an income-tested Bond. These Grants and Bonds can be paid into a RDSP up until the end of the year in which the beneficiary turns 49.
The amount of the Grant and the Bond that can be received is based on “family income”. How that is determined depends on the age of the beneficiary. Under 18, the family income is the parents’ income. Once 18, it will be based on the individual’s income (and spouse).
Let’s look at the matching Grant first. If the family income is under $83,000, then the Grant is equal to 300% on the first $500 deposited and 200% on the next $1,000 deposited. So by contributing $1,500, the RDSP could add Grants of $3,500. You’ve taken your $1500 and grown it to $5,000! And you can do that every year up to age 49.
If the family income is over $83,000, then the Grant is limited to 100% of the first $1,000 deposited. Still a good deal! The maximum total Grants paid is $70,000 per individual
The Bond available is meant for lower income families. No contribution is needed. Just open the plan and if the family income is under $24,000 a Bond of $1,000 is added. The Bond is prorated for incomes up to $41,000. The maximum total Bonds paid is $20,000 per individual.
A new twist was added in 2011. If you hadn’t opened a plan earlier, the Grants and Bonds are retroactive as early as 2008 when the plan was introduced. There are some annual maximums, so don’t wait too long.
As an example, say you are an individual with lower income and open a plan now. For 2008, 2009, and 2010 and now 2011, you have accumulated the Grant entitlement at the 300% rate and the other matching grant at the 200% rate. Plus, the Bond of $1,000 for each of those four years. So if you open the RDSP in 2011 with a deposit of $2000, you could collect $10,000 of government funds. And you still have some Grants to carry forward to another year.
Is there a catch? Yes, you cannot open the plan, collect the grants and then withdraw in a short period of time. Any withdrawal would trigger the payback of ALL the Grants and Bonds paid in the previous ten years.
The plan is really meant to be a long term savings plan for a disabled person.
What about provincial disability programs? When the RDSPs were first announced, it made sure that any future withdrawal would not impact GST credits or other federal programs. And the provinces have also stated the there would be either a full or partial exemption of RDSP withdrawals for income-tested provincial disability benefits.
If you need more information, please call me and I can send out some information to you. I also plan to put on a seminar before the end of the year specifically about this new savings plan. If you’d like to be advised when and where it will be, please contact me.
Anni Markmann is a Certified Financial Planner and tax professional living, working, and volunteering in our community. Contact her email@example.com or at 422-6631 or at 36 Dawson Road in Ste Anne