Up to 300% matching RDSP Grants

When talking about the advantage of setting up a Registered Disability Savings Plan (RDSP), we must talk about the Canada Disability Savings Grant (CDSGs) and the Canada Disability Savings Bonds (CDSBs). Government of Canada offers them to assist in savings for disabled people. We will first go through the CDSGs for now and discuss the CDSB at a later date.

 

 

CDSGs are matching grants that our Government will put into a beneficiary’s RDSP to assist savings. It could be as much as up to 300% of the deposit, depending on the contribution amount and family net income.

(Note: For the grants and bonds figures in 2017, please visit: https://samuelconsultant.com/rdsp-2017-updates/

 

The chart below outlines 2012 CDSG matching rates:

Family net income* CDSG matching rates Maximum annual CDSG Up to or equal to $85,414 300% on first $500 200% on next $1,000 $3,500 Over $85,414 100% on first $1,000 $1,000

 [Chart is obtained from the Mackenzie Investment’s website.]

 

For a minor beneficiary, the family net income is that of his or her parents. Whereas the beneficiary is over the age of majority, the family net income is that of the beneficiary and his or her spouse, if applicable. The income threshold is indexed annually to inflation.

Maximum CDSG:

CDSGs are subjected to a lifetime maximum of $70,000 for each beneficiary, and are payable until the end of the year that the beneficiary reaches age 49, given the beneficiary remains a Canadian resident.

Unused CDSG:

Beginning of 2011, unused grant can be carried forward for a 10 year period. (Starting from 2008, the year RDSP was launched.)

Let’s look at an example:

As part of a birthday gift, Meg and Allen agree to contribute $2,000 for each of the next five years to an RDSP for their disabled adult nephew, Tony. Because Tony is age of majority, his family income is used for CDSG purposes. Tony’s family net income and grant allocation for the next five years is as follows:

Family Net Income Contribution CDSG Year 1 $44,500 $2,000 $3,500 Year 2 $48,350 $2,000 $3,500 Year 3 $50,000 $2,000 $3,500 Year 4 $75,000 $2,000 $3,500 Year 5 $84,000 $2,000 $1,000 Total – $10,000 $15,000

[Example is obtained from Mackenzie Investments.]

There are no annual contribution limits, contributions of up to $200,000 can be made in any given year. However, when a lump sum of $200,000 is made, no CDSG would be paid after the first year. Therefore, periodic contributions might be a better option, especially, if one wants to maximize the grants and bonds from the government. Of course, it would also depend on the expected rates of return, age of the RDSP beneficiary and cash flow needs. Make sure you talk to a financial professional before you make any decision.

 

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• Disclaimer: Image Courtesy Stuart Miles/ FreeDigitalPhotos.net