Investing for disabled Canadians in the long haul
In many of my previous posts about the RDSP planning, I repeatedly emphasized this savings plan is for long term investing. But how many years are we talking about? To better illustrate the idea, let me show you 2 scenarios:
Jack, 45 years old male with prolonged disability
Jack is approved with the disability tax credit at age 45, and opened up the RDSP account in the same year. He wishes to receive as much disability savings grants from the government as possible, therefore, he will contribute until the end of the year where he reaches age 49. This is the final year, where the government will pay out any disability savings benefits to his RDSP account. To avoid any clawback of the disability savings grants and bonds, Jack should make sure that the 10 years withdrawal rule has been fulfilled. With the 5 years of contribution, and the 10 years clawback restriction, the earliest Jack could start withdrawing from his RDSP account without trigger the disability saving benefits would be at age 59. The total investment duration before any withdrawal begins will be 15 years.
Winnie, 10 years old girl with Autism
Similar to Jack, Winnie’s parents opened up a RDSP account for her in the same year she was approved with the disability tax credit. Her parents’ goal for Winnie is to receive the maximum amount of government grants and bonds. Since they are family with low income, Winnie will be eligible for the full $1000/year of disability savings bonds (CDSB). Furthermore, Winnie’s parents will contribute $1,500 into the RDSP every year, this will attract $3500/year of disability savings grants (CDSG). To maximize the grants and bonds, it will take 20 years to do so. Lifetime CDSB is $20,000 = ($1000X20 years). Lifetime CDSG is $70,000 = ($3,500 X 20 years). Once again, to avoid any clawback on the disability savings benefits, Winnie should wait another 10 years before withdrawal begins. With the 20 years of contribution and 10 years of waiting period, the total investment duration before withdrawal begins is 30 years.
Every once awhile I would receive comment such that the savings duration does seem kind of too long. However, this should not be the reason to stop you from savings for the disabled person. With the increasing cost of living, why would you anticipate the disabled person will not need to use money after a long period of time?
- Image courtesy artur84, stockimages/ FreeDigitalPhotos.net
- The amount of grants and bonds may varied in each individual’s case. It is subjected to different factors such as when the disability tax credit is approved, and the net family income of the disabled beneficiary. The above details is intended for general understanding and do not intend to provide specific advice. Rules in regards to the RDSP planning may be subjected to change. Please always consult a financial professional before making any decision.