Registered Disability Savings Plan can be a good tool

A Registered Disability Savings Plan can be a very good way to accumulate tax-deferred savings for a disabled person.

The Registered Disability Savings Plan (RDSP), which became available to Canadians in 2008, can be a very good way to accumulate tax-deferred savings (and obtain ‘free’ matching grants/bonds) for a disabled person.

Here’s how it works:

Any Canadian resident eligible for the Disability Tax Credit can be the beneficiary of an RDSP. There is no lower age limit — an RDSP can be established for a minor and, generally, the sooner the better.

The beneficiary and/or their family and friends can invest funds in an RDSP that will grow on a tax-deferred basis.

Contributions are usually not tax-deductible and can be made by anyone authorized by the holder of the plan up to a maximum lifetime contribution of $200,000 per beneficiary.

There is no limit on annual contributions, other than the lifetime limit.

Contributions must cease at the end of the year in which the beneficiary reaches age 59 and the beneficiary must begin taking payments from the plan (known as Disability Assistance Payments/DAPs) at age 60, although DAPs can be taken at an earlier age in some circumstances.

The federal government will usually contribute quite generous Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) amounts to an RDSP.

The amount contributed will be based on the family net income of the beneficiary, the value of the contributions each year, and any CDSG or CDSB contribution room carried forward from the preceding 10 years.

However, when DAPs are made, all the CDSG and CDSB received by the plan in the preceding 10 years will be clawed back. The best RDSP strategy is to start saving early and leave money in the plan for at least 10 years.

By the way, if you’re setting up a plan for a beneficiary who will turn 50 or older in a year, that RDSP isn’t eligible to receive CDSG or CDSB.

DAPs do not affect eligibility for federal income-tested benefits or credits but may affect eligibility for certain provincial or territorial benefits or credits.

If you intend to leave substantial assets to a disabled person, it is recommended that the assets in question flow into your estate, and that in your will you direct that the disabled person’s share of your estate is to be set aside in a testamentary trust known as a discretionary Henson trust, such that your trustee has the discretion to decide if, when and how much to distribute to or for the disabled person’s benefit.

It would be useful to specify within the will that the trustee may, if he or she thinks it appropriate, use trust funds to make contributions to an RDSP on the disabled person’s behalf, but the trustee should not be required to do so.

An RDSP can be a valuable planning tool — but there are many others to consider. Talk to your professional adviser about what’s best for your situation.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Valley-filmed mini-series honoured with Canadian Screen Award nomination

Actor Shawn Doyle was nominated in the Best Lead Actor category for Unspeakable

Earthquake drill offers safety lesson for Comox Valley Schools

Exercise at Glacier View includes smoke and pyrotechnics to add element of realism

Updated: Sightseeing airplane crashes in Saanich farm

Two sent to hospital with minor injuries after Cessna 172 crash at 8:55 a.m.

VIDEO: 7 things you need to know about the 2020 B.C. budget

Surplus of $227 million with big spending on infrastructure and capital projects

Public meeting in Courtenay to discuss state of residential care in B.C.

Long term residential care for seniors is an issue that is top… Continue reading

Trees Cannabis director fined $1.5M for selling marijuana

Fine follows provincial crackdown on popular dispensary

World Cup skier from Okanagan dies suddenly at 19

Kuroda, who made his World Cup debut earlier this year, passed away suddenly Monday night.

Coastal GasLink pipeline investor committed to closing deal despite protests

Developer TC Energy Corp. — formerly TransCanada Corp. — is to remain the operator of the $6.6-billion pipeline

New highway proposed between Alberta and B.C.

The route would connect Red Deer to Kamloops

What’s in a name? The story of Revelstoke’s Mt. Begbie

It’s likely the iconic peak had several Indigenous peoples’ names before settlers arrived

Budget 2020: B.C. Liberals blast ‘Netflix tax,’ lack of economic plan

ICBC rates still go up, except in election year, Shirley Bond says

Most Read