Registered Disability Savings Plans

This document was written by John Toft of Ottawa , parent of an adult son with autism.
John wants it to be known that he is not a professional in the RDSP field

There are several criteria for a beneficiary of an RDSP. The beneficiary must be:
·       A Canadian resident
·       Under the age of 60
·       Eligible for the Federal Disability Tax Credit.
 
Why should you consider establishing an RDSP for a beneficiary?
The basic answer is because the federal government will more than match your contributions to the advantage of your beneficiary. Further the combined contributions made over a period of years should amount to a healthy legacy for your beneficiary.
 
Federal government annual contributions to an RDSP depend on “Family Income,” For a beneficiary under the age of 18 it’s the family income of the beneficiary’s parents or guardian. For a beneficiary of 18 and older, it’s the beneficiary’s own family income, i.e. his or her personal income and that of his/her spouse. (In our family, it’s our 38 year-old son’s income from ODSP that determines the federal contribution, not his parent’s income.)
 
Where the family income is less than $75 769, a beneficiary may receive savings grants of 300% on the first $500 of contributions placed in an RDSP account, and 200% of the next $1000. So an annual contribution of $1500 will create a federal government contribution of $3500 in Canada Disability Savings Grants.
 
A further $1000 may be contributed by the federal government in a Canada Disability Savings Bond where the Family Income is less than $20 883. The Bond is phased out pro rata for family incomes in the range $21 287 to $37 885. No family contributions need to be made to receive this Bond. All that has to be done is to open an RDSP account. (Our son’s ODSP income of around $11 000 makes him eligible for receiving the Bond. If we did not contribute in a particular year to his RDSP account, he could still receive the Bond.)
 
In total then, if we or you placed $1500 in a RDSP for your beneficiary by the deadline, the federal government could more than match that with $4500 to bring the total invested in an RDSP to $6000. And this can be done on an annual basis.
 
Families may contribute more to a beneficiary’s account than the $1500 that brings about maximum federal contributions.  Federal government contributions would end should the total of family and federal contributions before earnings reach $200 000.
 
How to set up an RDSP account.
My experience of the last two weeks shows that this process is not too difficult, but it is time consuming.
 
On four separate occasions in the second and third weeks of January, I phoned the Bank of Montreal (BMO) for information concerning how to set up a Registered Disability Savings Plan (RDSP) so that my adult autistic son might receive its benefits in the future. On three of the four occasions I called, I had to wait about thirty minutes until I could speak to an advisor. Each conversation then lasted a further 30 minutes or more. Yet these calls were worthwhile. I am now able to complete the BMO application form for an RDSP account as well as the accompanying federal government form. My son’s RDSP account for 2008 will be in place before the March 2nd deadline. (Note: currently BMO is the only financial institution in Ontario to offer RDSPs.)
 
To obtain the necessary forms, I suggest you phone BMO, weekdays, between the hours of
7 00 am and 11 00 pm at 1 800 665 7700. There the financial advisors will advise you on the appropriate ways to obtain the forms to apply for an RDSP. Once you have received these forms complete them as much as possible before phoning BMO again for help in dotting all the “I”s and crossing all the “T”s in completing the application. One essential step is to set up a BMO banking account if you do not already have such an account.
 
The deadline for receipt of the applications is March 2nd for contributions for the 2008 year, so it is not too early to begin the process now.
 
PLAN Canada: One other valuable and vital source of information
 
PLAN Canada offers a great deal of information concerning RDSPs. Visit their website at PLAN Canada and become a member of PLAN by the simple process of clicking the appropriate “click here” button. There is no cost to PLAN membership. Within hours of me clicking here, I received three documents from plan over the internet including a fifteen page document detailing the ins and outs of RDSPs. Further, the PLAN Canada Home Page has an RDSP calculator button where you can calculate what your beneficiary would receive under various scenarios of contributions. For those without computer and internet access, I am sure public library staff would help you navigate to PLAN Canada.
 
An example of the RDSP calculator results from PLAN Canada
For my son, we entered into the calculator his age (39), the fact he is eligible for the Disability Tax Credit, that contributions would be made annually to an RDSP of $2000 per year until he is 60, that his personal family income is less than $21 287, and that we would expect conservative returns of 5.5% annually from his investments.
 
The RDSP calculator showed the following results:
·       He would be eligible for the maximum grant of $3500
·       He would be eligible for the maximum bond of $1000.
·       The estimated total of government grants and bonds to age 49: $49 500.
·       Estimated family and friends contributions to age 60:               $42 000
·       Total from all sources:                                                           $91 500
 
     *   Annual payments from the RDSP beginning at 60:                 $7 077
     *    These annual payments should increase by 5.5% annually with conservative investment strategies,
      *   Annual payments in 2009 dollars:                                       $5 453
      *   Number of years Lifetime Disability Payments will need to last: 23
      *   Value of RDSP when withdrawals start at age 60:              $162 760
      *   Total disability payments received over a lifetime (to age 83):  $312 158
 
Conclusion
Is it worthwhile investing in an RDSP for a family beneficiary? Yes! In our situation a family investment of $2000 annually over a period of 21 years ($42 000) would result in $162 00 for our son to begin to draw from at age 60, and a total of $312 000 made available to him if he lives to age 83, a typical life expectancy.