Are you disabled? If you are under age 60 and reside in Canada, you should consider opening a Registered Disability Savings Plan (RDSP).
Think of your RDSP as a way to provide you with financial independence. Your RDSP can help to make sure that you can take care of your own cost of living if you outlive your parents.
Note that your special RDSP nest egg will not interfere with your entitlement to any other government assistance plans such as Saskatchewan Assistance Program (SAP), the Saskatchewan Assured Income for Disability (SAID) and Guaranteed Income Supplement (GIS).
Disability Tax Credit
To qualify to open an RDSP you need to have the Disability Tax Credit (DTC). Ask your doctor to fill in application form T2201. Mail the completed form to the Canada Revenue Agency (CRA). You’ll have to wait several months to receive the confirmation letter from CRA.
What if you and your parents don’t have any money to make any contributions to your RDSP? Don’t let that deter you from starting an RDSP. If you are under age 49 and you make less than $25,356 a year, you can qualify for $1,000 of government assistance per year. Once you apply, you would see the
Canada Disability Savings Bond (CDSB) deposited to your RDSP account.
Simply by opening an RDSP account, the government will keep giving you the $1,000 CDSB each year for up to 20 years. That’s free money that most people don’t know about.
These $1,000 CDSB grants for RDSPs have been available since 2008. Even if you missed out on receiving the $1,000-per-year CDSB grants for previous years you can still claim them retroactively. Because the grant depends on your income level, you need to make sure you have filed your income tax returns for 2006 onward to obtain all seven years of grants available for the years 2008 to 2014. Remember that it is not too late to file those prior year tax returns.
What if you do have some cash to deposit into your RDSP? If you contribute $1,500 per year to your RDSP, the federal government adds a matching Canada Disability Savings Grant (CDSG) of up to $3,500 each year. In other words, your deposit can be more than tripled.
What if your parents have died and you have received an inheritance or a life insurance payout?
If you inherit money from your parents’ registered plans (such as an RRSP, RRIF or pension plan) there are ways for those accounts to be transferred tax-free into your RDSP. Remember that there is a $200,000 maximum lifetime limit for deposits.
Your RDSP is not a shortterm savings account or emergency fund. An RDSP is supposed to provide basic cash flow and cover your long term care costs after age 60. If you take money out of your RDSP before 10 years have passed, you must repay any grants deposited by the government into the plan during the 10 years preceding the withdrawal.
To open an RDSP, you must sign a contract with a financial institution. The financial institution may be reluctant to deal with a person with a mental disability who may lack the capacity to enter a contract. They may ask for a legal representative to be appointed to sign the contract to set up your RDSP for you.
Applying to the court for full property guardianship is expensive. A practical alternative developed in Saskatchewan involves using a specific limited Power of Attorney form to authorize a family member to set up your RDSP for you.
Because RDSP rules are complex, it is prudent to seek the help of a knowledgeable financial adviser.
BY TERRY MCBRIDE, THE STARPHOENIX
Terry McBride, a member of Advocis, works with Raymond James Ltd. (RJL). The views of the author do not necessarily reflect those of Raymond James Ltd. (RJL). Information is from sources believed reliable but cannot be guaranteed. This is provided for information only.