I thought it might be useful to run through a quick review of the Registered Disability Savings Plan. I find it very easy to get caught up in all the small details surrounding the RDSP, and as such, will run through a broad overview of the RDSP for those of you who are just beginning to acquaint yourself with the plan and prepare for its launch in December. I should also mention, in case there are some of you who would like to have a hard copy description of the RDSP, that you can click on our header under “RDSP FactSheet” to access our quick, printable two-pager.
Similar to a Registered Education Savings Plan, the RDSP is a long-term savings plan that will allow funds to be invested tax-free until withdrawal. Contributions into the plan will be permitted by anyone, including friends and family, with a lifetime limit of $200,000 which does not include government contributions or interest. While contributions may be received from anyone except the provincial government and have no annual limit, all contributions must be received before the beneficiary’s 60th birthday.
As an incentive for people to set up an RDSP and contribute into the plan, the Government of Canada has created the Canada Disability Savings Grant and the Canada Disability Savings Bond. The Grant was designed to encourage friends and family to contribute by providing generous matching contributions, while the Bond was designed to help those who may not have any friends and family in the position to help.
Highlights of the Canada Disability Savings Grant
When annual net income is equal to or less than $74,357 the grant will contribute:
$3 for every $1 contributed on the first $500.
$2 for every $1 contributed on the next $1,000.
When annual net income is over $74,357, the grant will contribute:
$1 for every $1 contributed up to $1,000.
The Grant can be received up to a maximum of $70,000 over a person’s lifetime, and only until the beneficiary turns 50 years of age.
Highlights of the Canada Disability Savings Bond
When annual net income is $20,833 or less, the Canada Disability Savings Bond will provide $1,000 per year without any personal contribution. The Bond is pro-rated if your income is between $20,883 and $37,178.
The Bond was created to make the RDSP accessible to persons with disabilities whose family and friends are not in a position to make contributions. The Bond can be received up to a maximum of $20,000 over a person’s lifetime, and only until the beneficiary turns 50 years of age.
Establishing and Managing an RDSP
Anyone who is eligible for the Disability Tax Credit can set up a plan. To find out whether you are eligible for the Disability Tax Credit you can contact the Canadian Revenue Agency or visit their website. In the case of a minor child, a parent or guardian can establish and direct the RDSP. In the case of an adult setting up a plan, they can set up a plan or can have a plan set up for them by a parent or legal guardian.
Impact on Federal and Provincial Benefits and Programs
The federal government has exempted the RDSP from affecting any federal support programs, such as CPP, OAS and GIS. For anyone living in British Columbia, Newfoundland, Yukon, and Saskatchewan, the plan is an exempt asset and you are free to use any income from your plan in whatever way you choose without affecting your income assistance.
Getting Ready for the RDSP
With the RDSP expected to become available from financial institutions in December of 2008, we are encouraging people to do two things in order to take full advantage of this plan:
- Make sure you qualify for the Disability Tax Credit.
- Make sure you file a 2007 tax return.
* Net income refers to a family’s combined net-adjusted income while the plan beneficiary is a minor. While they are an adult, net income refers to an individual’s net-adjusted income, and includes that of his/her spouse or common law partner.