I recently co-hosted an info session for parents to learn morning about RDSP’s (Registered Disability Savings Plan). I learnt that saving for your child’s future, specifically for after you’re potentially gone as their caregiver or parent is something we should consider early on in their lifetime. If you are a Canadian resident and your child qualifies for the Disability Tax Credit, an RDSP is something you can open for them through a bank or other investment group such as SunLife.
When you contribute to this type of savings account, you are investing in your child’s financial security.
There is no savings plan that the government contributes to at such a high matching rate, if your annual household income is under $98,040 there is a potential to have your contribution matched at 200%-300% for an overall lifetime limit of $200,000. If your income is over that dollar amount you can still be matched $1 for $1 (that’s 100%!) and up to $1,000 per year. For comparison, an RESP (Registered Education Savings Plan) only matches at 20%.
There are a few rules with this type of account, ie. It must sit dormant for TEN years (with zero contributions including any grants or bonds) before withdrawals can be made.
Below are some questions that were answered during our online info session.
What happens if we move out of country?
If you move out of country and are no longer a resident of Canada you can leave the account but no contributions can be made. If the beneficiary were to move back to Canada and they are still eligible for the DTC, they can start up contributions again. If you are no longer a Canadian resident, you’ll be able to withdraw your contributions and the growth from the investment. Any grants/bonds will returned.
How does the 10 year dormant period work?
Typically the beneficiary of the account will start drawing on the account when they are 60 years old because no bonds or grants are paid past the year the beneficiary turns 49, however if there is another 10 year period where there are no grants or bonds paid it is possible to start drawing on the account at that time. The tricky part is that you can not make any contributions which will trigger a grant and your family income cannot dip below the $49,020 limit for bonds.
What if the life expectancy of the beneficiary changes?
If a doctor certifies in writing that the beneficiary has 5 years or less to live, you can make an election to start drawing from the plan. (This is called a Specified Plan.) Withdrawals will not trigger the repayment of any grants or bonds.
From financial advisor Paula Holt
A note about investments:
Like any other investment account, the investments held in your account are determined by going through our “Investor Profile Questionnaire”. Once you have determined your risk tolerance and comfort level, I would assist with finding mutual funds that fit your comfort level. Because an RDSP can only be held within one fund company, I typically use funds from Mackenzie Investments as they have a team dedicated solely to RDSP’s.
Please see attached RDSP pamphlet from Mackenzie Investments for more information.
If you have any questions regarding RDSP’s or other investments, or you would like to begin the process of opening an account please feel free to contact this kind human noted below.
Paula Holt (SunLife Advisor)
10403 – 122 Street, Unit 152, Edmonton, AB T5N 4C1
The sooner you start saving, the earlier you can start building long-term financial security.