If you have successfully applied for the Disability Tax Credit, the savings do not end with your tax return. You are also eligible for FREE money from the government! I know that sounds too good to be true! That is why I asked Jane Buchanan, District Leader, Representative of Primerica Financial Services, to explain exactly how easy it is to get FREE money!
What is the Registered Disability Savings Plans (RDSPs)?
People with disabilities and their loved ones face a distinct set of financial challenges throughout their lives. To help address these challenges, the Government of Canada introduced the Registered Disability Savings Plan (RDSP) in 2008. Designed to help build long-term financial security for disabled persons, the RDSP makes it easier to accumulate funds by providing assisted savings and tax-deferred investment growth.
Who is eligible for an RDSP?
To qualify for an RDSP a beneficiary must:
• Be eligible for the Disability Tax Credit
• Be a resident of Canada
• Be less than 60 years of age
• Have a valid Social Insurance Number
The Disability Tax Credit is available to individuals who have mental or physical impairments that markedly restrict their ability to perform one or more of the basic activities of living, such as speaking, hearing or walking. The credit is also available to those who spend more than 14 hours per week on life-sustaining therapy.
The impairment must be expected to last longer than one year, and a physician must certify the extent of the disability. There can only be one RDSP account per beneficiary, and only one beneficiary per plan.
What are the key benefits of an RDSP?
- Money contributed grows tax free.
- Anyone can contribute to an RDSP with the written consent of the account holder.
- Contributions can be matched, based on family income, with up to $3,500 a year in Canada Disability Savings Grants (CDSG) and up to $1,000 a year in Canada Disability Savings Bonds (CDSB).
- Carry forward on CDSG and CDSB is available back 10 years or to date of diagnosis.
- The total lifetime contribution for each beneficiary is $200,000, with no annual contribution limits.
- If a parent or grandparent passes away and has a financially dependent child or grandchild, they can transfer up to $200,000 of their RRSP/RRIF or RPP to the dependent’s RDSP on a tax-deferred basis.
Who can qualify to be the beneficiary of an RDSP?
To qualify to be the beneficiary of an RDSP, an individual must:
- Be eligible for the Disability Tax Credit
- Be a resident of Canada
- Be less than 60 years of age
- Have a valid Social Insurance Number (SIN)
How do you maximize your savings?
- Start saving early. Make it automatic by enrolling in a pre-authorized chequing program.
- Take advantage of government grants and bonds and contribute every year to get the maximum annual Canada Disability Savings Grant and Canada Disability Savings Bond.
- Plan withdrawals to avoid federal grant and bond repayments.
What is the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB)?
The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) are federal programs that provide payments to RDSPs to encourage long-term savings through an RDSP.
Grants and bonds are available to beneficiaries up until December 31st in the year they reach age 49. Contributions can be matched, based on family income, with up to $70,000 in Canada Disability Savings Grants and up to $20,000 in Canada Disability Savings Bonds.
RDSP with drawls
How do you contribute to an RDSP?
Once an RDSP is set up there are five ways to put money in:
- contributions by the account holder.
- contributions by people the account holder has authorized.
- federal grants and bonds.
- transfers from a qualified or RRSP, RRIF or RPP.
- transfers of the accumulated income from a registered education savings plan on which the beneficiary is on both RESP and RDSP.
How do to get money out of an RDSP?
RDSP withdrawls are known as disability assistance payments. There are two types of payments from a RDSP.
Lifetime disability assistance payments are recurring annual payments that one started must be paid until the plan is terminated where the beneficiary has died. These may begin at any age that must start by the end of the year in which the beneficiary turns 60.
The other type of payments are disability assistance payments which are lump sum payments made to the beneficiary or the beneficiary’s estate.
When withdrawing funds from the RDSP, it is important to be aware of the 10 year rule. If a person withdraws amounts that were contributed in the ten-year period prior, grants and the bonds from the government must be repaid to them. The repayment is three dollars for every one dollar withdrawn (aka the Holdback amount).
The purpose of the holdback amount is to ensure that RDSPs are used for long-term savings, and it also ensures the government funds contributed are not withdrawn and used otherwise.
Have more questions?
Contact Jane Buchanan, District Leader, Representative of Primerica Financial Services Call: (506) 863-4425 Email: [email protected]