In August more than 1,600 disabled athletes descended on Toronto for the 2015 Para Pan Am Games. Their skill and competitive spirit brought to light the enormous challenges they face in their pursuit of athletic excellence and in their daily lives.
Many disabled person are not able to work full-time, a reality that can have a big impact on their financial security. In 2008 the Canadian government put in place the Registered Disability Saving Plan (RDSP) which has provided a venue for persons with disabilities, regardless of whether they ever compete in athletic games, to build a financial nest egg and save for their future.
As of December 2014 some 110,000 Canadians with disabilities had socked away $3 billion in assets in RDSP accounts. RDSPs are available through banks, credit unions, trust companies and other financial institutions.
“RDSPs are a long-term savings vehicle for people with disabilities that have been dramatically gaining in popularity since they were introduced,” says Carol Bezaire, vice-president of tax, estate and strategic philanthropy for Mackenzie Investments. “It provided a whole new opportunity for people with disabilities who often had been living in poverty for most of their lives to build cash flow and funds for the future.”
The RDSP works in much the same way as the Registered Education Savings Program (RESP) in that the government gives matching grants (Canada Disability Savings Grant) and pays into your RDSP to help you save – in this case giving matching grants of up to 300 per cent a year subject to family income thresholds.
Also like an RESP an RDSP is converted to a Retirement Income Fund when the account holder turns 60 years of age.
By simply opening an RDSP account the government will give low-income individuals up to $1,000 a year in the form of a Canada Disability Savings Bond to a maximum of 20 years.
RDSPs have further advantages into that they do not affect other disability benefits. Provincial disability benefits are not affected when people save in an RDSP and federal government benefits such as the Canada Pension Plan, Old Age Security and Guaranteed Income Supplement also are not affected.
There are no restrictions on what you can spend your RDSP savings on, although the primary intent is to have the money put away to fund retirement. But it can be accessed sooner if necessary and the money can be invested in a variety of investment products such as mutual funds, terms deposits and equities. Sixty eight per cent of RDSP assets are invested in mutual funds for long-term growth.
Anyone can make contributions to an RDSP – you, your parents, grandparents, siblings, aunts, uncles and even friends. Contributions can be made to a maximum of $200,000 in a lifetime. Unused grants and contributions can be carried forward and used in the future.
RDSPs also are tax effective. If you receive a lump sum such as an insurance claim it can be put into the account without tax consequences, and if the account holder is the beneficiary of a supporting parent or grandparent’s RRSP, RRIF or Registered Pension Plan the money may be able to be transferred to the RDSP up to the maximum $200,000 upon their death on a tax-deferred basis.
Since the RDSP is designed as a long-term savings vehicle money should remain in it for at least 10 years. When money is withdrawn all of part of the grants and bonds that have been in the plan for fewer than 10 years must be repaid to the government — $3 for every $1 that is taken out up to the total amount of grants and bonds paid into the account in the last 10 years.
RDSP rules are complex and keep changing, so Bezaire recommends people consult and work with a professional financial adviser.
“It takes some planning but this is a great program that has given thousands of Canadians a chance to save for their future and improve their quality of life,” Bezaire says. “I love it.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
By: Talbot Boggs, The Canadian Press