Parents of disabled children carry the added burden of saving for their child’s future. A friend recently mentioned her fears for her disabled daughter and I vaguely recalled reading about helping parents of disabled children in the Budget 2007 document. In its last budget, the Federal Government unveiled a plan to create the Registered Disability Savings Plan (RDSP) this year. Modelled on the RESP, contributions to the RDSP are not tax deductible but attract matching grants in the form of a Canada Disability Savings Grant (CDSG). The growth of investments within the RDSP is not taxed but when withdrawn, the grants and investment gains within the plan are taxed in the hands of the beneficiary.
The CDSG matches the RDSP contribution at 100%, 200% or 300% depending on the family’s net income (i.e. gross income less RRSP contributions, child-care expenses etc.) and the amount contributed for a maximum of $3,500 per year. For example, a family with a net household income of about $75,000 can contribute $1,500 to their child’s RDSP and get the maximum CDSG of $3,500. Families with net income above this threshold can get a matching of 100% when contributing up to $1,000.
Low-income families can establish a RDSP and receive a Canada Disability Savings Bond (CDSB) of $500 or $1,000 per year, even if no contributions are made. There are lifetime limits to how much can be contributed to the RDSP and how much can be received from the CDSG and CDSB.
You can learn more about this program in last year’s Budget document. The CRA website mentions that the plan would come into effect “as soon as possible in 2008″.
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9 responses so far ↓
1 FourPillars // Jan 3, 2008 at 12:37 am
The problem with these kind of plans is that they are so income dependent. If someone who makes good money has a disabled child they can get some big grants which is fine, but what about lower income families who can’t save easily for a contribution? - especially families where one of the parents has quit work to look after the disabled child? Similar to the RESP they can get a small grant but it’s much less than the grant that the higher income family will receive.
I suppose there are other programs and tax breaks available which might level the playing field for low income families with a disabled child but the RDSP is definitely geared towards higher income families (like the RESP).
I’m not a socialist by nature but the fact is that we live in a socialist country and if I have to pay the taxes, then I would like to see the money go to the people who need it.
Great post idea by the way..
Mike
2 WhereDoesAllMyMoneyGo // Jan 3, 2008 at 1:41 am
I echo Mike’s sentiment - excellent post idea.
Another strategy to look at is the use of Henson trusts for those who have disabled children. It allows for monies to be transferred into a trust for the purpose of income splitting of sorts. So any disability benefits or program eligibility will not be impacted upon the death of the caregivers and resulting transfer of estate.
If the assets of the estate pass directly to the disabled person - they can become ineligible for payments and programs. Having the assets pass to the Henson trust circumvents this - a trustee is designated to act on behalf of the beneficiary.
This trust can be set up as inter-vivos - there is no requirement that I’m aware of to set it up as a testamentary provision.
3 Canadian Capitalist // Jan 3, 2008 at 11:09 am
Mike: I think this savings plan is a great idea because even a medium-income family can get a grant of $1,500 on just a $500 contribution. A low-income family can establish the plan and get the CDSB even without any contribution. Families making more than $75K in net income get a 100% match for the first $1,000. It seems to me that the plan is set up such that lower-income families benefit much more.
Preet: I am not aware of Henson trusts. Maybe you should write a post on it
4 FourPillars // Jan 3, 2008 at 2:55 pm
The plan is not a bad one but like the RESP, it’s only in theory that lower income families can benefit more. Low income families would have a hard time coming up with any significant contributions.
There are other programs and tax breaks as well which I don’t know anything about but would enter into the equation of how well a low income family would cope financially.
Mike
5 WhereDoesAllMyMoneyGo // Jan 7, 2008 at 3:12 pm
Post has been written on Henson trusts! Thanks for the idea.
6 Weekend Reading - Jan 11, 2008 | Million Dollar Journey // Jan 11, 2008 at 3:31 am
[...] of this financial burden, there are some Canadian programs that you can take advantage of. Canadian Capitalist writes about the Registered Disability Savings Plan (RDSP) and WhereDoesAllMyMoneyGo writes [...]
7 Jennie // Jan 30, 2008 at 1:43 pm
The problem with this plan is that it discriminates against people with disabilities by only allowing contributions up to the age of 49. What makes the disabled so different from everyone else who can put money in until their late 60s? It particularly discriminates against older disabled people who will not have time to put enough money into the plan to have enough to get by when their parents die.
We’re lookin’ at civil rights lawsuits here! More cost to the taxpayer!
8 Comment on Registered Disability Savings Plan by Jennie | Save Money! // Jan 31, 2008 at 8:15 pm
[...] Jackson Citizen Patriot wrote an interesting post today onHere’s a quick excerptThe problem with this plan is that it discriminates against people with disabilities by only allowing contributions up to the age of 49. What makes the disabled so different from everyone else who can put money in until their late 60s? … [...]
9 Geoff // Feb 6, 2008 at 1:59 pm
This is in reply to your post Jennie.
Private contributions can continue up till the end of the year the beneficiary turns 59. It is the government grants and bonds which are no longer available after the year in which the beneficiary turns 49.
The reason for this is the 10 year holdback provision and the requirement that normal payments must start before the end of the year the beneficiary turns 60.
So, as long as the beneficiary does not withdrawal funds prior to the year in which they turn 60, the government should not be able to take back the grants and bonds and the associated earnings on those grants and bonds due to the 10 year holdback on funds.
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