Just awhile ago, I did a RDSP workshop for “I Believe In Miracles“, a therapy and tutoring agency for children with special needs. In one of my previous posts, I shared how a person may grow their disability savings to $398,891 in the long run. Today, I will show you another example from the workshop, and that is how disabled people could claim back all the “Canada Disability Savings Grants” (CDSG), that they are entitled to from the previous years.
RDSP Example: $13,500 Contribution Attracts $31,500 Disability Savings Grants
– Eric is a 10 years old boy, and is diagnosed with prolonged disability.
– Back in 2006, he was already approved with the disability tax credit.
– He is raising by his parents, where their family net income has always been well below $80,000 and will remain the same.
From the above details, we will know that:
– With the right amount of contribution, Eric may claim back all the Canada Disability Savings Grants up until the year 2008. (Note that despite he was already approved with the disability tax credit in 2006, 2008 is the earliest year in which the grant could be claimed back, since that was the year the RDSP was launched.)
– Since his family net income has always been below the first threshold of the CDSG’s table, Eric can get benefited from the higher matching rates, which is 300% on the first $500 contribution, and 200% on the next $1000.
Therefore, to catch up all the disability savings grants, this is what Eric should do:
2014 – Contribute $3,500
– CDSG: $500 x 300% x 7 years = $10,500
2015 – Contribute $5000
– CDSG: $500 x 300% x 1 year = $1500
– CDSG: $1,000 x 200% x 4.5 years = $9000
– Total CDSG: $10,500
2016 – Contribute $5000
– CDSG: $500 x 300% x 1 year = $1500
– CDSG: $1,000 x 200% x 4.5 years = $9000
– Total CDSG: $10,500
” Result: With a contribution of a total $13,500, Eric will receive $31,500 disability savings grants from the government, which enhance his savings within the RDSP account to $45,000.”
One thing I really like about the RDSP grant is the government will first giveaway the grants with the higher matching rate. For example, when we look at the year 2014, with the contribution of $3,500, Eric will receive $500 X 300% X 7 = $10,500, this is for the years from 2008 to 2014. This structure helps the disabled beneficiary to receive more funding within the RDSP account earlier, which allows the savings to have more time to grow. With just $13,500 of contribution, the savings for Eric will be amplified to $45,000. Not to mention that we didn’t even consider the potential of receiving the Canada Disability Savings Bonds in this example. Depending on the family net income, Eric may also receive savings bonds of up to $9,000 by the year 2016. If you are Eric’s parents, will you choose RDSP to be your savings tool?
Disclaimer: The amount of government grants and bonds may varied from individual case. This post is for general information only and is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please consult an appropriate professional regarding your particular circumstances. Image Courtesy photostock/FreeDigitalPhotos.net
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