The Registered Disability Savings Program
Posted by Gail | Filed under Saving
Susan Mladenovich, CMA, is an accountant who agreed to write a guest blog about a little understood disability benefit. If you have a disabled dependent or know someone who does, send them the link to this so that they can become more familiar with a new and very important benefit. Life is tough for people who must deal with disability. We need to spread the word so we can take advantage of whatever benefits are available to ease the strain. Email Susan directly at firstname.lastname@example.org or visit her website at www.accountingdepartment.ca. Here’s Susan…
As an accountant, I am often involved in helping my clients get access to government funds like the disability tax credit and CPP benefits. It is amazing to me how difficult it is to get information on government programs that help with people suffering from disabilities.
Just before Christmas, a major program finally came into existence, which had been announced in the federal budget in 2007. The Registered Disability Savings Program allows eligible people to qualify for up to $4500 in government grants for a $1500 investment.
If you are the parent of a disabled child, a big question is what will happen when you are no longer there to provide the care you’ve been giving. Years of working to keep the child at home as a participating member of the family all vanishes as the only option is to have the dependent child placed in a home after the parents’ death.
Compounding the issue is the fact that recipients of provincial disability programs are not allowed to accumulate any assets or money, making putting money away for the future nearly impossible.
The Registered Disability Savings Plan (RDSP) will allow people with disabilities to put money aside in an account and allowed to grow tax free until it is needed. This is similar to the new Tax Free Savings Account but is a separate program. There is a $200,000 lifetime contribution limit but no annual limits. Also, anyone can contribute to the plan and there are no restrictions on when or how the funds are used.
In conjunction with the savings plan, the government offers a Disability Savings Grant. For families with an annual net income of less than $75,769 the grant will contribute:
- $3 for every $1 contributed on the first $500
- $2 for every $1 contributed on the next $1,000.
For families with net income over $75,769, the grant is $1 for every $1 contributed up to $1000.
There is also a Disability Savings Bond, which provides low-income (under $21,287) families with $1,000 per year without any contributions required. That is 100% FREE MONEY!
A point of clarification: family income depends on the age of the person with disabilities. For individuals under 18, family income would be the combined income of the parents. For a person over 18, family income would be the individual’s income plus their spouse’s income, or just their own income if they are single, even if they live with their parents. So, for several of my clients, the over 18 child living at home only receives disability benefits, leaving their net income well under the limit for the $1000 bond.
The challenge with the program is that the federal government had to work with the provincial governments to ensure that disability recipients would not be penalized by having their benefits reduced. As you can imagine, this has taken quite a long time. British Columbia, Newfoundland and Labrador, Saskatchewan, Manitoba, Yukon, Alberta, and Ontario have all exempted the RDSP as an asset and income when determining a person’s eligibility for provincial disability benefits. Quebec and New Brunswick have exempted the RDSP as an asset and partially exempted any payments from the plan. Prince Edward Island has fully exempted the RDSP for calculating eligibility for income?tested social programs, except where someone’s income exceeds the low?income level defined by the National Council on Welfare.
Okay, let’s do some math.
- If your net income is under $21, 287 you will receive $1000 with no contributions by you.
- If the family net income exceeds $75,769, you can receive a maximum of $1000 matched dollar for dollar to your contribution. This is a 100% return on investment!
- But the magic really happens for those with family income under $75,769. By contributing $1500 the government will give you $3500 ($3 x $500 + $2 x $1000).
- If you make under $21,287, the total government contribution is $4500. That’s right, $4500 added to your contribution of $1500.
While the launch of the program was finally approved on December 3, 2008, the grants and bonds are an annual amount that do not carry forward (unlike the RESP grants which don’t expire). So to take advantage of the 2008 government contributions, a plan had to be established before December 31st, 2008. Only one bank was offering the plan – Bank of Montreal. However, the deadline for 2008 was extended to March 2nd, 2009 so you still have time to act sock money away for 2008. But time is running out.
The basic requirements are:
- Eligible for the disability tax credit;
- Has a social insurance number;
- Have filed a 2007 and 2008 tax return;
- Under 50 years of age.