Q&A with Cyndy & Sarah – Registered Disability Savings Plans

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by Sarah Chisholm, Financial Advisor, O’Farrell Financial Services

The federal government is currently working on a Disability Inclusion Action Plan, with the goal of improving the lives of Canadians with disabilities. As with any federal initiative, this program will take time to develop and implement. In the meantime, we often have clients asking what investment opportunities are available for those who are living with a disability in Ontario.

What investments are available?

Disability can cover a wide spectrum, and it should be noted that those living with disabilities have access to all the same investment opportunities as everyone else. Registered Retirement Savings Plans, Education Savings Plans, Tax Free Savings Plans – these accounts should all be reviewed as part of an overall financial strategy. In addition, Canadians living with a disability also have access to the Registered Disability Savings Plan.

Who is eligible for the RDSP?

If a person qualifies for the federal Disability Tax Credit (DTC), is younger than 60, has a social insurance number, and is a resident of Canada, they are likely eligible to open an RDSP.

Why sign up for an RDSP?

The goal of the RDSP is to provide a retirement income for persons with a disability. To reach this goal, the federal government provides grants and bonds for the RDSP. The grant portion correlates with annual contribution amounts and annual income test levels. For example, if your family net income is below $98,040, the first $500 of contribution would receive $1,500 of grant, and the next $1,000 of contribution would receive $2,000 of grant. The maximum lifetime grant is $70,000. The government bond is also income tested, and a beneficiary could receive up to $1,000 per year, or up to a lifetime maximum of $20,000. The grant and bond portions are significant. According to Statistics Canada, in 2017 the Government of Canada paid out $351.6 million in grant and $155million in Bonds into the RDSPs.

What other considerations are there?

The RDSP has age limits. Once grants and bonds are received, there is a 10-year holding period before they can be redeemed without a claw back. The accounts are structured so that grant and bond payments can be received until the end of the year the beneficiary turn 49, and redemptions must begin by the end of the year the beneficiary turns 60. Redemptions are structured based on government calculations, which factor in age, and percentage of government contributions vs. beneficiary contributions.

Does everyone know?

Disabilities are not always obvious. You may have friends or family who already receive the Disability Tax Credit, or could be eligible, but have not yet opened an RDSP. According to Statistics Canada, in 2017 only 32.5% of Ontarians who were eligible for the DTC had an RDSP. Spread the word, you never know who may be eligible.

Speak with a Financial Advisor about the RDSP and how it could benefit you or those around you. We welcome questions so please reach out!

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