Guest Post: The Benefits of a Registered Disability Savings Plan

Kicking off our new guest blogging series is Geoff Zaldin. He is sharing with us valuable information related to the notable benefits of having an RDSP. At Gluckstein we believe in community involvement and support, and we are so excited to invite members of our community to share their insights and expertise with our readership. We believe that our guest bloggers will offer a high amount of value to our clients and readers. We hope you enjoy this incredibly helpful and insightful post by Geoff Zaldin.   Registered Disability Savings Plan (RDSP) have two extremely beneficial but different uses. The first use is that you can potentially receive up to $90,000 of government money for opening and contributing into an RDSP.  The second is that an RDSP can protect individuals in Ontario who are on ODSP as the funds in an RDSP are exempt from the asset limits of ODSP. In addition, any withdrawals from an RDSP are also exempt from the ODSP income rules. To qualify for an RDSP you must meet ALL of the following criteria:

•        Be eligible for the disability tax credit (DTC)
•        Under the age of 60 (one and only one RDSP can be opened for an individual and contributions can be made until the end of the year in which he or she becomes 59 years of age)
•        Be a resident of Canada and have a valid social insurance number (SIN)

The most widely known benefit of the RDSP is the government money that is available when you open an RDSP.  An individual with an RDSP is eligible for the government money but only until December 31 in the year they turn 49. There are two types of government funds for RDSP accounts, The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bonds (CDSB).    To receive grant money, you need to contribute into an RDSP.  The amount of grant entitlement for each qualifying year is based on the net income from Line 236 from the income tax return of the parent(s) living with the individual until the end of the year they turn 18 (this is determined by how you filed your tax returns) and then the net family income of the individual and spouse if any when over the age of 18. When determining the net family income to determine the grant entitlement, the tax return from two years prior to the year of contribution will be used (for example, in 2019 when determining grants and bonds, the government will look at the 2017 tax returns). The amount of grant matching will depend on whether the net family income is above or below a threshold set by the government, which changes each year. For 2019 the grant threshold is $95,259. If the net family income is above the threshold, then you are entitled to a grant of a dollar for each dollar contributed to a maximum of $1,000 for each qualifying year. If the net family income is below the threshold, then you are entitled to a grant of three dollars for each dollar contributed up to the first $500 contributed. After the first $500 contributed, you will be entitled to a grant of two dollars for each dollar contributed up until the next $1,000 has been contributed. This means if your net family income is under the grant threshold, you will receive grants of $3,500 for $1,500 of contributions for each qualifying year. Bonds are amounts paid by the government into an RDSP to low-income individuals that have qualified and opened an RDSP account. No contribution is required. For 2019 you would receive $1,000 of bond money if the net family income that applies was under $31,120. If the net family income for 2019 is between $31,120 and $47,630 then you would receive a portion of the $1,000 bond according to the formula in the Canada Disability Savings Act. Like the grants, these threshold numbers change every year. CDSG and CDSB will be clawed back if ANY funds are withdrawn from the RDSP within 10 years of ANY grant or bond having been received. This is known as the assistance holdback amount (AHA). Contributions made into an RDSP are not tax deductible, but the growth in the account is not subject to income tax until withdrawn. When an individual first opens an RDSP, they can carry forward unused grants and bonds up to 10 years. However, $10,500 is the maximum annual grant money they can receive, and $11,000 is the maximum annual amount of bonds. If RDSP contributions are more than grant money, that contribution is not carried forward to attract grants in future years. They only receive grant money for contributions made in the current year. There is a maximum lifetime contribution limit of $200,000 into an RDSP, and this limit does NOT include the government grants and bonds received. The other main benefit of an RDSP is in a Financial and Estate plan for an individual with special needs that is on ODSP and is receiving an inheritance.  To maintain ODSP benefits including the drug and dental coverage you must follow strict asset and income rules. RDSPs are the only tool that allows funds to be totally exempt from ODSP calculations of BOTH assets and income.  Maintaining ODSP can often mean more financially than the $90,000 of government money that is available when utilizing the RDSP. There are other rules that are often not discussed when opening an RDSP that should be.  They include a process if a beneficiary has a reduced life expectancy of less than five years, the ability to rollover retirement savings into an RDSP if the beneficiary is a dependent of the deceased, how and what portion of a RESP can be transferred into an RDSP and why it would be beneficial and the fact that there can be a limitation on the amount that can be withdrawn from an RDSP. While RDSPs can be opened at most financial institutions, most staff at banks and the credit unions that offer RDSPs aren’t usually educated in the complex rules of either RDSP, ODSP or Henson Trusts. I strongly suggest that an individual find someone who is knowledgeable about RDSPs and concepts of higher financial and estate planning from a special needs perspective. This would include a discussion of the concept of a Henson trust (which is a type of trust designed to benefit disabled persons by protecting assets,  usually an inheritance, as well as the entitlement of government benefits and entitlements) and other methods of ensuring continued entitlement of government benefits and services, especially ODSP. I have tried to summarize as best I can, but the RDSP rules and specifications are very complex and impossible to fully articulate in a relatively short blog.  If you have any questions, I would be happy to assist you. Geoffrey Zaldin is co-founder of Special Needs Financial in Toronto. He can be reached at (416) 221-3553 or Geoffrey@SpecialNeedsFinancial.ca.   At Gluckstein Lawyers, helping you learn how to advocate for yourself, better understand the healthcare system and the benefits you are entitled to is part of our commitment to full-circle care. Thank you for joining us for our first guest blog post, and thank you to Geoff Zaldin for offering his expert insights and help our clients in their journey of understanding their options moving forward. We hope you will join us next time!