Make some noise for the RDSP

Make some noise for the RDSP
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Make some noise for the RDSP

It is perhaps one of the best-kept secrets going. The Registered Disability Savings Plan is a relatively new national tax-deferred, long-term savings plan for families who want to help ensure the financial security of relatives with disabilities and for individuals with disabilities who want to build up retirement savings for themselves. Think of it as an RESP — only with far more generous federal funding. In fact, for each dollar contributed, the federal government adds up to $3 in grant money.

The first type of product of its kind in the world, the RDSP launched in December 2008 but to date only 40,000 people have set up an RDSP even though 500,000 people qualify — a 10% uptake for a program that is life changing, says Jack Styan, managing director of the RDSP Resource Centre based in Vancouver. “The RDSP provides up to $90,000 in federal funding for people who qualify. As of Jan. 1, 2011, new carry-forward provisions mean anyone who establishes an RDSP will be able to collect some of the federal funding they could have tapped into if they had established the plan when it was first offered in December 2008. That’s $4,000.”

Who is eligible? Anyone who qualifies for or is already receiving the Disability Tax Credit (DTC) can set up an RDSP. Someone who is blind, deaf, receives life-sustaining therapy or is restricted in two or more daily living activities (e. g., dressing, eating, walking) is eligible. People with developmental disabilities, mental health issues, or autism should also apply. “We all have our preconceptions around disabilities, but in reality the DTC applies to a much broader group of people than just those with physical a disability.”

What’s more, anyone can contribute to an RDSP — parents, grandparents, friends, charities, foundations –it’s wide open. And this is one of the reasons the RDSP is so impactful. “It harnesses community goodwill,” says Kristi Mader, director of the Planned Life Advocacy Network (PLAN) in Vancouver, the organization that was instrumental in getting the RDSP off the ground. “For a lot of people with disabilities, income-earning potential can be limited, and for many poverty is a reality. The RDSP provides an opportunity for financial security and it allows anyone to help.”

While an RDSP can be set up for anyone under the age of 60 who meets the criteria, it makes the most sense for families with young children with special needs. It’s a 30-year plan. Younger families will be able to benefit from the full $90,000 of federal grant and bond money available.

Even if you have a lower income and are unable to contribute anything at all, the federal government will contribute $1,000 a year up to $20,000 over the life of the plan, just for setting it up–free money that grows tax-free and that can be withdrawn as needed.

That annual $1,000 government contribution comes in the form of the Canada Disability Savings Bond. The government will also match contributions through the Canada Disability Savings Grant.

If the family or individual income is less than $80,000 the federal government contributes 3:1 on the first $500 that goes into an RDSP or up to $1,500. On the next $1,000 contribution by the family or individual, the federal government will contribute on a 2:1 basis, or $2,000. So for a $1,500 contribution by the family or the individual, the federal government will contribute up to $3,500 into the plan.

If the family or individual annual income is above $80,000, then the grant will match dollar for dollar on the first $1,000. The maximum an individual will receive is $70,000 in their lifetime through the grant program.

“It’s important that people understand that the RDSP is in addition to provincial benefits–it doesn’t impact them. And you can use the money for whatever you want,” says Mr. Styan. “The RDSP opens the door for people with disabilities to view their lives and their future in a different way. It provides an income stream they wouldn’t otherwise have.” His advice: “Get started as soon as you can.”