Everyone has heard about RRSP’s and how good they are. Yet, RDSP’s are talked about much less. No real surprise. The RRSP program was started in 1957 and the RDSP got its start on December 1st, 2008. As well, the RDSP isn’t available to nearly as many people. Despite that, I’m finding that more and more people are eligible, AND you get so much more bang for your buck from an RDSP. We’ve set up many RDSP’s for our client families, and the momentum isn’t letting up, so I thought you should know more about it.
So what is an RDSP? It is a Registered Disability Savings Plan but don’t let the “Disability” word make you think that this doesn’t apply to someone you know. When I get told that we are opening a RDSP for a client family member, I think (and often say in disbelief), REALLY? They are considered disabled? “Diabetes (as an example) is considered a disability?”
Through visits with a care professional, along with further analysis, a T2201 Disability Tax Credit Certificate is completed and submitted to CRA which qualifies the person for the Disability Tax Credit. This is the ‘ticket’ needed to reap the financial benefits of having an RDSP.
So what does the RDSP get you? Up to $90,000 from the government. To start receiving this, you need to make a contribution to your new RDSP . For the 1st $500 you put in, the government will add $1,500 (Canadian Disability Savings Grant). On the next $1,000, they’ll kick in another $1,000. With that, your $1,500 has magically become $3,500. That is a 1 year guaranteed return of 133.3% (although the government $’s get added to your RDSP within a few weeks). It doesn’t stop there, though. You continue to get government $’s paid in for 49 years (or until the beneficiary reaches age 59, whichever comes 1st).
To get that level of payout however, your family must take in less than $117,045 of net family (2026 taxable; after deductions – this number is adjusted upwards every year). If your family income is higher than that, you can contribute $1,000 and you’ll get $1,000 added each year by the government for every year you contribute.
If your family income is quite low ($38,237 or less), the government recognizes that it’s impossible to come up with $1,000 to contribute to an RDSP. They’ll simply add the $1,000 to an RDSP. All you need to do is set one up. Invest $0 and get $1,000? You can’t even calculate how high the rate of return on your money is on that deal. $0 invested to get $1,000 is an incalculably high Rate Of Return.
What can that do for you in the long term? Assuming a scenario where you get the full benefits from the government, this is how much would be in the RDSP (your contributions totaled $49K over 49 years):
Even if your family income is on the higher side, the long term benefit of an RDSP is still parabolic:
Once the beneficiary turns 60, the RDSP must pay out a piece of it annually, so as to provide them an income.
RDSP’s are 1 of the most advantageous savings vehicles available today.
Should you have questions and / or want to work with our Financial Advisory in setting up a RDSP and how it fits into other parts of your financial situation, let Jen in our office know. We’d be happy to help you get your government money and grow your RDSP for the long term.
PS. Do you or anyone in your family have diabetes, a learning disability, hearing, sight, mobility issues, PTSD etc.? 1 in 8 Canadian families has a family member who may have a disability. You or your family member may be highly functional. They seem like everyone else. Yet, the Canadian government deems them to be a person with a disability and thus qualifies for an RDSP. One client family we work with has 3 people who have RDSPs. One is attending a university with some scholarships. You would never know she is considered to be disabled. Yet by the Canadian government she is, and thus she qualifies an RDSP.
