RDSP – Account Level Questions:
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- What is Registered Disability Savings Plan (RDSP)?
- Who is eligible to setup a RDSP account?
- How do I apply for the disability tax credit?
- What are the key benefits of RDSP?
- Who will be the people involved with the RDSP account?
- Who can be the RDSP account holder?
- Can there be more than one account holder for the RDSP?
- Can the RDSP account holder be changed?
- Can the RDSP account be named with more than one beneficiary?
- How many RDSP accounts could I have?
- What should I look for when choosing a financial institution to administer the RDSP account?
- Can I transfer my RDSP account from one financial institution to another?
RDSP – Disability Savings Grants, Bonds and Contributions Questions:
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- What is Canada Disability Savings Grants?
- How will the Canada Disability Savings Grants be calculated?
- Can I receive more Canada Disability Savings Grants from previous years?
- What is Canada Disability Savings Bonds?
- How will the Canada Disability Savings Bonds be calculated?
- Can I receive more Canada Disability Savings Bonds from previous years?
- Should I still open if I don’t have money to make the RDSP contribution?
- When is the deadline for annual Canada Disability Savings Grants and Bonds?
- What is the RDSP income matching rates for 2016?
- When calculating the Canada Disability Savings Grants and Bonds, whose income will the government look at?
- Where could I find out my information about the Canada Disability Savings Grants and Bonds?
- How will the grants and bonds be credited into my RDSP account?
- Who can contribute into the RDSP?
- Is there a maximum RDSP contribution amount?
- When can contribution be made into the RDSP?
- Can savings within a RESP account be transferred into the RDSP?
- Can investments from non-registered account be transferred into a RDSP?
- Can investments from RRSP, RRIF or RPP account be transferred into a RDSP?
- What type of investments can be included into the RDSP?
- Do you have any illustrations that could demonstrate the enhancement RDSP could bring to the beneficiary over the long haul?
RDSP- Withdrawals and Taxation Questions:
RDSP- What-if and Other Discussion Questions
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- What would happen if I’m no longer qualified for the disability tax credit?
- What would happen if the RDSP beneficiary die?
- What if the beneficiary has shortened life expectancy?
- What would happen if the account holder beneficiary die?
- Will the RDSP affect my benefits with the Ontario Disability Support Program (ODSP)?
- I’m the RDSP account holder for a beneficiary who is financially dependent on me, I’m concerned I don’t have leave enough savings to continue with the RDSP savings when I pass away. What are my options to overcome this concern?
- What if I’m not satisfy with the level of services I’m getting at my current financial institution?
- What should be my next step?
What is Registered Disability Savings Plan (RDSP)?
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- This is a saving plan introduced by the Government of Canada introduced the Registered Disability Savings Plan (RDSP) back in 2008. The main purpose is to assist Canadians with prolonged disability to enhance their long-term savings. The two key benefits of this savings plan is the Canada Disability Savings Grants and the Canada Disability Savings Bonds.
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Who is eligible to set up a RDSP account?
To setup a RDSP account, the person with special needs must be:
- Be a Canadian resident
- Have a valid Social Insurance Number (SIN)
- Under age 60 (According to the CRA’s website: “a plan can be opened for an individual and contributions can be made to it until the end of the year in which he or she becomes 59 years of age”)
- Currently approved with the Disability Tax Credit
- (Special Reminder: Grants and bonds will only be payable until the end of the year in which the beneficiary reaches age 49)
How do I apply for the disability tax credit?
To apply for the disability tax credit, please have your doctor fill out the T2201 form, then mail it to the CRA. For more details, please visit: https://samuelconsultant.com/disabilitytaxcreditcanada/
What are the key benefits of RDSP?
There are several key benefits to set up a RDSP:
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- Canada Disability Savings Grants: Matching grants which encourage contributing toward the RDSP account
- Canada Disability Savings Bonds: Deposits from government for low-income families with disability. No contribution is required
- Tax deferral growth within the RDSP account
- Most government benefits do not take into consideration of the amount of savings within the RDSP
Wh0 will be the people involved with the RDSP?
- Account holder: The person(s) who could make all the financial decision for this account. (i.e.: Decision on investments, contribution, withdrawal, transferring)
- Beneficiary: The person who is approved with the disability tax credit, where the savings is meant to be accumulated for this person
- Contributor: This can be anyone as long as he/she has approval from the account holder to make the contributions.
- Administer: The financial institution where the RDSP account is set up with.
- Advisor: The person who provides ongoing advice and management for your RDSP account according to the needs of your family.
Who can be the RDSP account holder?
When the beneficiary is a minor, the legal parents or guardian or agency legally authorized to at for the minor could set up the RDSP while remaining as the account holder until beneficiary becomes an adult.
When the beneficiary reaches age of majority (age 18 for most provinces), that would depend if whether the beneficiary has the ability to manage for his/her own finance. If the beneficiary is contractually competent, then he/she can become the account holder.
For more details when the adult beneficiary is not contractually competent, please visit: https://samuelconsultant.com/rdsp-beneficiary-age-of-majority
Can there be more than one account holder for the RDSP?
Yes, the RDSP account can be jointly held.
Can the RDSP account holder be changed?
Yes, the account holder can be changed. For example, if the father of the beneficiary opens the plan and is the holder, after his death the beneficiary or the beneficiary’s subsequent legal guardian can become the plan holder. If at any time the plan holder (other than a legal parent) ceases to be an eligible holder, they must be replaced with someone who is eligible to be a holder of the plan.
Can the RDSP account be named with more than one beneficiary?
No, one RDSP account can only have one beneficiary.
How many RDSP accounts could I have?
There could only be one RDSP account for each beneficiary.
What should I look for when choosing a financial institution to administer the RDSP account?
There are many financial institutions where you could open the RDSP account, but the level of services could vary great among one another. In many instances, the most determining factor might not be where you setup the account, rather it is whether you could receive the support and proactive advice from the advisor who services you. Planning for families with special needs requires a very unique set of financial knowledge, many financial institutions might not provide adequate training to their staffs working in the local branches. To see how we are different, please visit: https://samuelconsultant.com/rdsp-professional-services/
Can I transfer my RDSP account from one financial institution to another?
Yes, RDSP account can be transferred from one financial institution to another. Your current financial institution might charge you fees to transfer out the RDSP account. Please remember do NOT withdraw any money from the RDSP account on your own, as this could result in claw back of the government grants or bonds. The receiving financial institution should provide you with a set of transferring documents. If you are interested in transferring out your account to our management, feel free to contact us at https://samuelconsultant.com/contact/
What is Canada Disability Savings Grants?
To encourage families to start savings for the disabled person, the Government of Canada provides the Canada Disability Savings Grants (CDSGs). This is a matching grant that the government will deposit into the RDSP account. The amount of CDSGs will be based on how much is the contribution and the net family income of the disabled person. Grants will be payable until the end of the year in which the beneficiary reaches age 49.
How will the Canada Disability Savings Grants be calculated?
- Maximum annual CDSG is $3500 for family net income less than $90,563
- Maximum annual CDSG is $1000 for family net income over $90,563
- The lifetime maximum is up to $70,000
The above are according to the matching rate in 2016, where the family net income amounts are adjusted each year based on inflation rate.
(Update: The matching rate in 2017 can be found: https://samuelconsultant.com/rdsp-2017-updates/)
Can I receive more Canada Disability Savings Grants from previous years?
Yes, starting in 2011, unused grant entitlements can be carried forward for a maximum of 10 years. The grants can be backdated to the later of 2008 or to the year that the disability tax credit was approved. At most, a beneficiary will generate $3500 of CDSG room in a specific year. Even though a beneficiary may have accumulated a substantial amount of grant room through the 10 year carry forward rules, the maximum grant payment in a particular year is $10,500. An interesting note is that contributions to the RDSP will first use up the 300% room, then 200%, then 100%.
What is Canada Disability Savings Bonds?
To provide even greater support to families with low-income, there is the Canada Disability Savings Bonds. Unlike the matching grants, CDSB does not require any contribution, government will solely look at the net family income to determine whether one is eligible for it. This savings bonds will be payable until the end of the year in which the beneficiary reaches age 49.
How will the Canada Disability Savings Bonds be calculated?
- This benefit is available to beneficiaries whose family net income is less than $45,282
- Maximum annual CDSB is $1000 for family net income is less than $26,364
- Lesser amount of benefits for family net income between $26,364 and $45,282
- The lifetime benefit per beneficiary is up to $20,000
The above figures are according to the matching rate in 2016, where the family net income amounts are adjusted each year based on inflation rate.
(Update: The matching rate in 2017 can be found: https://samuelconsultant.com/rdsp-2017-updates/)
Can I receive more Canada Disability Savings Bonds from previous years?
Yes, similar to the matching grants, the Canada Disability Savings Bonds room can be carried forwarded for up to 10 years. It can be backdated to the later of 2008 or to the year that the disability tax credit was approved. At most, a beneficiary will generate $1000 of CDSG room in a specific year. Even though a beneficiary may have accumulated a substantial amount of bond room through the 10 year carry forward rules, the maximum grant payment in a particular year is $11,000.
Should I still open if I don’t have much money to make the RDSP contribution?
Definitely! Depending on your family net income, you might be entitled to the Canada Disability Savings Bonds. Also, with the matching grants, even some small contributions into the RDSP account could make a huge difference over the long haul.
When is the deadline for annual Canada Disability Savings Grants and Bonds?
The annual deadline is December 31st for grant and bond consideration. However, I strongly do NOT recommend to leave it to such a last-minute.
What is the RDSP income matching rates for 2017?
To view the 2017 matching rates for the Canada Disability Savings Grants and Bonds, please visit: https://samuelconsultant.com/rdsp-2017-updates/
When calculating the Canada Disability Savings Grants and Bonds, whose income will the government look at?
When beneficiary is a minor, the family net income is based on the parents or guardians.
When beneficiary is an adult, the family net income is based on the the beneficiary’s net income (and spouse if applicable)
Where could I find out my information about the Canada Disability Savings Grants and Bonds?
You could call the ESDC department at 1-866-204-0357.
Alternatively you could write a letter to:
- Canada Education Savings Program
Employment and Social Development Canada
140 Promenade du Portage, Phase IV
Mailstop: Bag 4
Gatineau Quebec K1A 0J9
To add more value to our services, I often make 3-ways calls together letter for our clients.
How will the grants and bonds be credited into my RDSP account?
Typically speaking, the matching grants will be invested into the same investments as your contribution, while the savings bonds will be deposited into the investment that you specified when you established the RDSP account.
Who can contribute into the RDSP?
With the consent of the account holder, anyone could contribute into the RDSP account. However, it is important to understand once the money is deposited into the RDSP account, this amount of savings will no longer belongs to the contributor. The way to use this funding will be solely on the discretion of the account holder.(Assume the contributor is a third party other the beneficiary and account holder). Some financial institutions might require written consent to be signed by the account holder and contributor.
Is there a maximum RDSP contribution amount?
The lifetime maximum contribution into the RDSP is $200,000. Since there is maximum limit of Canada Disability Savings Grants being paid out every year, it is important to consider whether it is beneficial to deposit with such a lump sum or to make the contribution throughout different years.
When can contribution be made into the RDSP?
Contribution can be made to the Registered Disability Savings Plan (RDSP) given none of the following has been reached:
- December 31st of the year in which the beneficiary reaches age 59
- The beneficiary passes away
- The lifetime $200,000 maximum of contribution has been reached
- The beneficiary is no longer Canadian resident for tax purposes
- The beneficiary no longer qualifies for the “Disability Tax Credit” (DTC)
Can savings within a RESP account be transferred into the RDSP?
The Registered Education Savings Plan (RESP) consists of the contribution, government’s monies and the accumulated income. * Effective Jan 1st, 2014, the accumulated income from the RESP may be transferred to a RDSP on a tax deferral basis. Please remember this rollover will not attract any Canada Disability Savings Grants. The contribution of the RESP would be returned to the subscriber, then it is on the discretion of the RESP subscriber whether to invest this money back into the RDSP account or not, then this amount would be eligible for matching grants consideration. As for the government’s monies within the RESP account, (which may consists of the Canada Education Savings Grants and Canada Learning Bond), they would have to be pay back to the government.
It is important to understand any rollover from the RESP will reduce the beneficiary’s RDSP contribution room.
* Assume the beneficiary of the RESP and RDSP is the same person.
Can investments from non-registered account be transferred into a RDSP?
Yes, investments can be transferred from non-registered account be into a RDSP. *Although this could be eligible for Canada Disability Savings Grants consideration, the transfer will be considered as deemed disposition, which could result in taxation consequences.
* Assume all other requirements (i.e.: DTC approved, within age limit, contribution is not maxed) to receive the CDSGs are met.
Can investments from RRSP, RRIF or RPP account be transferred into a RDSP?
Yes, but this applies to the transfer from a deceased parent or grandparent who the beneficiary was financially dependent on. As of July 1st, 2011, the transfer from the RRSP, RRIF or RPP of the deceased parent or grandparent can be processed on a tax-deferred basis into the beneficiary’s RDSP. It is important to understand this transfer will reduce the RDSP contribution room, but this will not attract any Canada Disability Savings Grants.
What type of investments can be included into the RDSP?
The qualified investments within the RDSP are very similar to those for the Registered Education Savings Plan (RESP) and Registered Retirement Savings Plan (RRSP). It includes cash, GICs, stocks, bonds, mutual funds and other type of investments. However, not every financial institutions would include a large range of investment lineups for the RDSP accounts. It is important to find one that has a greater selections to meet your investment needs.
Do you have any illustrations that could demonstrate the enhancement RDSP could bring to the beneficiary over the long haul?
You could read over my previous posts:
Please understand they are only for general information purposes, result is not guaranteed as it could vary among individuals.
When can I start withdrawing from the RDSP?
Let’s assume your goal is to start the withdrawal, but without claw back of the government grants or bonds, then you should be aware of the 10-year rule. At the time of the withdrawal, if there were any grants and bonds being paid into the RDSP in the previous 10 years, then they would have to be repaid to the federal government. This is named as the Assistance Holdback Amount (AHA). The intention of the AHA is to encourage families to use RDSP for long-term savings. As of Jan 1st, 2014, the government has loosen the withdrawal rules, where the claw back ratio will be $3 of government grants and bonds for every $1 withdrawn from the account, rather than having to repay all grants and bonds contributed into the account over the last 10 years.
Since the time to maximize the matching grants would vary among different people, there is no set date of withdrawal for everyone. You are welcome to contact us, then we could analysis over your situation.
What are the rules that govern the RDSP withdrawals?
There are two types of withdrawals from a RDSP account:
- Disability Assistance Payments (DAPs) is lump sum payment that can be paid to the beneficiary any time after the RDSP account is set up. However, it can only be made if the RDSP’s fair market value after payment will be more than the AHA (grants and bonds received in the previous 10 years.)
- Lifetime Disability Assistance Payments (LDAPs) is a recurring annual payments that continue until the beneficiary passes away. Payments can begin at any age, but must begin by the end of the year in which the beneficiary turns age 60
Both DAPs and LDAPs can be used flexibly according to the beneficiary’s needs, they do not need to be used for disability-related expenses. There are specific formulas to calculate the maximum annual withdrawals amount, which are generally tied to the fair market value of the RDSP at the beginning of the year, age of the beneficiary, and life expectancy.
It is important to understand these payments are also subjected to the Assistance Holdback rules (AHA). You may click here to read more about the AHA.
What are the tax implication in withdrawing from the RDSP?
RDSP withdrawals consist of contributions, grants and bonds from the government and income growth. Contribution are generally not taxable, while the grants and bonds, income growth will be taxable to the beneficiary.
However, in some cases, contribution will also be taxable. That is when the source of contribution was a rollover from
- RRSP/RRIF/RPP monies of a parent or grandparent who is financially supporting the beneficiary
- Accumulated Income (AIP) from an RESP
Do I have to report tax about the RDSP every year?
- As long as there is no withdrawal from the RDSP account, there is no taxation detail to be reported.
Is the RDSP contribution tax deductible?
- Unlike the Registered Retirement Savings Plan, RDSP contribution is not tax deductible.
What would happen if I’m no longer qualified for the disability tax credit?
If an RDSP beneficiary is no longer approved with the Disability Tax Credit (DTC), the RDSP needs to be terminated by December 31st of the following year. Any grants and bonds in the account are required to be repaid to the government, and will be lost permanently.
As of January 1st, 2014, a beneficiary can have their RDSP remain up for up to 5 years, if they lose their “Disability Tax Credit” eligibility but expect to get it approved again the future. In such situation, an election must be filed in which a medical practitioner certifies that they expect the beneficiary to regain the Disability Tax Credit eligibility within the next five years. Although the RDSP account can remain open with this election, no contributions can be made, grants and bonds will not be deposited, the grants and bonds room will not be accumulated. During this time, if any withdrawal is made, then it will be subjected to the Assistance Holdback Amount (AHA) rule.
What would happen if the RDSP beneficiary die?
When the beneficiary passes away, the RDSP account must be closed. The initial contributions can be retrieved tax-free. Any Canada Disability Savings Grants and Bonds that has been deposited into the RDSP account in the previous 10 years will be claw back to the government. Accumulated income growth is taxable in the beneficiary’s final return. Proceeds from this closure of the RDSP will be distributed according to the beneficiary’s will. If the beneficiary passes away without having a will, then it will be distributed according to the rules of intestacy in each province.
What if the beneficiary has shortened life expectancy?
The RDSP can be changed to a specified disability savings plan (SDSP). This is aim to provide greater flexibility on the withdrawals for beneficiaries who have shorted life expectancy, which is 5 years or less. A doctor needs to certify in writing that the beneficiary has the life expectancy of 5 years or less, then they could make an election to change the plan into SDSP. Withdrawing from the SDSP won’t trigger the AHA claw back rule, as long as the total taxable withdrawal amount made in the year is not over $10,000. If an election is made, then no contribution, government grants and bonds can be made into this account. Also, the account will no longer be entitled to any new carry forward disability savings grants and bonds.
What would happen if the account holder die?
In situations where the RDSP account holder is another person other than the beneficiary, when the holder passes away, the control of the account would typically pass to the holder’s executor until either a legal guardian or a qualified family of the beneficiary is included into the account. In situation where there is a joint account holder scenario, the control can be passed to the surviving joint holder.
Will the RDSP affect my benefits with the Ontario Disability Support Program (ODSP)?
No, accumulating savings with the RDSP will not affect the eligility in receiving the ODSP, because RDSP is one of the exempted assets under the ODSP program. Below is a quote from the Ontario Ministry of Community and Social Services’s website:
Some assets are “exempt” – this means they do not affect your eligibility for Income Support. Here are some examples of exempt assets:
- the home you own and live in
- your primary vehicle (the one you use the most, if you have more than one)
- trust funds derived from an inheritance or life insurance policy, up to allowable limits
- the cash surrender value of life insurance policies, up to allowable limits
- pre-paid funerals
- Registered Education Savings Plans (RESP)
- Registered Disability Savings Plans (RDSP)
- necessary household and personal items, such as furniture and clothing.
http://www.mcss.gov.on.ca/en/mcss/programs/social/odsp/income_support/assets.aspx
Furthermore, payments from an RDSP do not impact other income-tested federal government programs such as:
- Canada Pension Plan (CPP)
- Guaranteed Income Supplement (GIS)
- Old Age Security (OAS)
- Goods and Services Tax Benefits (GST Benefit)
- Social assistance benefits
I’m the RDSP account holder for a beneficiary who is financially dependent on me, I’m concerned I won’t leave enough savings to continue with the RDSP savings when I pass away. What are my options to overcome this concern?
If you are concerned about premature death, and need to ensure there will be enough savings to contribute into the RDSP for the beneficiary, then you should consider having adequate life insurance coverage. Some policy could provide lifetime permanent coverage, while others are meant to provide coverage for a specific terms (i.e.: 20 years), but with more affordable premium. You are welcome to contact us, then we could find out what is your insurance needs.
What if I’m not satisfy with the level of services I’m getting at my current financial institution?
This is a very common situation experienced by many families with special needs. Planning for families with special needs requires a very unique set of financial knowledge, many financial institutions might not provide adequate training to their staffs working in the local branches. If you would like to explore whether we are in a good fit to work together, we welcome you to contact us. https://samuelconsultant.com/contact
What should be my next step?
If you are serious about growing your long-term savings with the RDSP, we welcome you to contact us. To make it more convenient for you, we provide multiple methods of communication. (i.e.: phone, email, whatsapp.) If you desire to meet with us, we could also arrange an online meeting, and meeting in person at our office.
First, please fill out the contact form at the page below:
Disclaimer:
The above details are for general understanding only, not intend to provide any financial advice. The details are posted on Sept 8th, 2016 and may be subjected to change without notice. Although we tried to post the details as accurate as we could, they are not guaranteed to be error-free, and may not be applicable to your specific situation. Please always consult a financial professional before making any decisions.