If you would like easy to understand information on the new Registered Disability Savings Plan please visit www.rdsp.com.
The Registered Disability Savings Plan was designed to be a long-term option for those looking to plan for the future financial security of themselves or their family member. As such, the plan will be the most beneficial for those who are able to open and save over a number of years. For many people, they may not have the option of saving over a larger number of years, and will therefore look to use the plan somewhat differently then those (for instance) who are saving for a child and can start early.
A friend of mine was recently explaining how she was having some trouble explaining to the bank that she didn’t want to receive any grant and bond, and instead wanted to simply put in her money so that she could take out payments whenever she wanted. At 48, she realized that she was only eligible for two years of grant, and wanted to be able to use the RDSP right away, instead of waiting to take out payments at the age of 60.
Now from a purely financial standpoint, her deciding to forgo receiving two years of the grant doesn’t make sense. In order to maximize the amount of money in the plan, it would make more sense to take advantage of the grant. I mean, who wouldn’t want free money into their plan?
That would be true if it were all about money….but it’s not.
For some people like my friend, they have been restricted from using money they receive in the manner they want. Although different for each jurisdiction, in most provinces the regulations tied to those receiving disability benefits mean that the amount of money you can save and spend is restricted, along with restrictions on what you can spend it on. For someone who has had to justify every purchase they ever make to make sure they don’t lose their disability benefits, having the opportunity to put money away, and then spend it on whatever they want is a very exciting prospect.
So why is there confusion?
1) Many people are still uncertain as to how you can take out payments, and what are the rules and restrictions (see my post on payments by clicking here) .
2) The launch of the RDSP happened very quickly and many of the financial institutions (along with everyone else) are still trying to wrap their heads around what is allowed and what isn’t.
3) Financial Advisors are trained to make you money, so if you are proposing to use the plan in a way that makes less money it will be important to explain why.
4) Financial institutions are not required to allow every type of payment, only payments determined by the Lifetime Disability Assistance Payment formula. From what we have seen so far, most have been very flexible around the types of payments they allow and have not restricted payments to the formula.
The KEY: Always make sure to outline your intentions and plan for the RDSP. Answer the question: How do I want to use it? When do I want to take out payments? Do I want to use it as a long term savings plan, or do I want to begin using it now? What type of payments do I want to take out, lump sums or annual payments?
By letting your financial advisor know how you intend to use the plan, you can make sure that there is no confusion, and that it is best suited for you.