RDSP Planning for the Disabled Smart Year End Move
Registered Disability Savings Plans (RDSPs) have been around since 2008 and they remain a lucrative savings plan for the disabled.
Contributions are not deductible, but income accumulates in an RDSP tax free. Later, contributions are withdrawn from an RDSP on a tax free basis, but all other amounts—accumulated investment income, and the grants and bonds provided by government to enhance savings are taxable in the hands of the beneficiary as withdrawn. Those government “sweeteners” should be discussed before year end to maximize investment advantages.
Here’s how they work: the Federal government will provide direct financial assistance to RDSPs in two ways.
1. Canada Disability Savings Grant will match RDSP contributions as follows:
Family Net Income (2013)Up to $87,123Over $87,123First $500 – 300% (maximum $1,500)First $1,000 – 100% (maximum $1,000)Next $1,000 – 200% (maximum $2,000) Therefore, $1,500 contributed to RDSP generates
$3,500 CDSGTherefore, $1,000 contributed to RDSP generates
Family income is calculated in the same manner as it is for Canada Education Savings Grant purposes except that in years after the beneficiary turns 18 family income is the income of the beneficiary and their spouse or common law partner.
There is a lifetime maximum of $70,000 that will be funded under the CDSG and an RDSP will not qualify to receive a CDSG from the year in which the beneficiary turns 49.
2. Canada Disability Savings Bond. Unlike the CDSG, there is no requirement that a contribution be made to a RDSP before a savings bond contribution is available.
The maximum annual CDSB entitlement is $1,000 and is earned where family income does not exceed $25,356 in 2013. The CDSB amount is phased out completely when family income is $43,561.
There is a lifetime maximum of $20,000 for CDSBs. Like the CDSG, CDSBs will not be paid after the beneficiary of the RDSP turns 49.
Paying attention to net income levels is important, to maximize government participation in these savings plans. An RRSP contribution can help reduce net income. See a Distinguished or Master Financial Advisor for assistance with the estimated tax calculations and an RRSP deposit.