Tom Drake interviewed me a while ago, and we were going to chat about the RDSP (Registered Disability Savings Plan). We did end up mostly talking about the Disability Tax Credit (DTC), but it was still a very fun time for me. Whether Tom enjoyed it, remains to be seen.
I offer you up my notes, that I attempted to use during the interview, they are a bit scattered, but still informative, I hope.
Social Insurance Number
A social insurance number is a must for most government programs.
- Whoever is involved in this, must have a SIN (and be a Canadian Resident). First thing to do, and these days it is usually applied for when a child is born.
DTC
The Disability Tax Credit is the cornerstone of the whole thing. Without it, you are not disabled (in the eyes of the Government).
- You can do nothing with an RDSP until you have a DTC . The Disability Tax Credit (DTC) is granted by the CRA.
- Typically you apply for it, outside of your normal Tax return
- This must be a severe and prolonged disability that disrupts the persons day to day life in a significant way.
- It can be granted on a temporary basis and may need to be reapplied for, which we have done for my son, and will have to do again.
- The RDSP can only be opened once the CRA grants the DTC (and yes they can deny it at a later date, depending on things).
- You can do it yourself, don’t use the “helping firms” out there. So many different medical folks can help with this (e.g. Nurse practitioners)
RDSP Overview
What is a Registered Disability Savings Plan? Lots of parts to it.
- The government has designed this as a very long term savings plan (until someone turns 60 is the goal). Employment and Social Development (ESDC) are the policy setters for the program. Check their web site for information.
- A program’s maximum contributions over the life of the RDSP, $200K
- The total grants paid per year will be $3500 and a total of $70K throughout the life of the plan.
- The entire program’s maximum age for someone to apply for an RDSP, should be 49 years old, since at 59 they can no longer contribute to it.
- The plan can start paying out at age 60.
- It can pay out earlier in extenuating circumstances
- The RDSP turns into a Specified Disability Savings Plan, when someone has a Doctor write a medical certificate stating that the payee will most likely die with in the next 5 years.
- These funds in the RDSP should not be part of any Bankruptcy. I have been assured by the ESDC that this is the case, however, the bankruptcy law does not mention Registered accounts in general and the RDSP in specific as exempt.
Opening an RDSP
- Who offers something other than a Bank Mutual Fund based RDSP? Currently most banks offer versions of the RDSP, however, few offer much flexibility.
- TD Waterhouse (Directline) is where I currently invest. It offers complete flexibility in terms of where money can be invested (e.g. ETFs, Stocks, GICs, etc.,)
Grants
- Typically the grants offered are based on the parents income, until the child turns 18. After that the level of grants will be based on the childs income
- Canada Disability Savings Grant (CDSG) is a response to a deposit in the account, the amount of the grant (and the maximum value for the year), is set every year in the Statement of Entitlement.
- Canada Disability Savings Bond (CDSB), an amount paid yearly into the RDSP for extremely low income beneficiaries. If you have low income, and RDSP is still a good option for long term savings.
DTC Revocation
If the beneficiary loses their DTC, a new rule has been added in the past year that does not force them to collapse their RDSP, they can hold onto it for now, while they reapply for the DTC.
LDAP
Lifetime Disability Assistance Payment is a payout from the RDSP to someone who has reached the age of 60. This is how the money is normally dispersed from an RDSP.
DAP
You can withdraw money from your RDSP before you turn 60, however, it is not encouraged.
- Disability Assistance Payment, is a withdrawal. It is a payment made from an RDSP to the beneficiary or their estate.
- DAPs typically will have AHA involved, as penalties, for early withdrawals.
SDSP
This is one of the instances where money can be taken out of an RDSP early.
- Specified Disability Savings Plan (SDSP) happens when the beneficiary has a short life span (less than 5 years), and this must be certified by a Medical Practitioner (Doctor or Nurse Practitioner).
- This is reversible, however, there is a lot of work that needs to be done in that case.
PGAP
Primarily Government Assisted Plan is an RDSP where most of the funds contributed to it, was from the Government. This RDSP scenario has many rules about early withdrawals (which can happen, but may not be worthwhile).
AHA
These are the penalties for taking money out early.
- Assistance Holdback Amount, the penalties paid if someone attempts to withdraw money early. Typically it is $3 for each dollar withdrawn, up to a maximum of the amount of Grants paid into the RDSP for the past 10 years.
- In the case of a PGAP, there are even sterner rules.
- There is a methodology for getting funds out earlier than at age 60, but it is quite complex, and assumes a 10 year plan before doing the withdrawal.
British Columbia Autism
Milburn Drysdale’s site is the go to for RDSP information, especially if you live in BC.
- Check out the Autism Funding in BC web site (asdfunding.com) for the most thorough discussion of the RDSP and DTC on the web (other than the ESDC web site).
