Registered Disability Savings Plan
Filed Under (Disability Finances/Benefits) by Estee on 08-01-2009
For those of you investigating like me, ways and means to save for our children’s future, in may be worthwhile looking into the newly instigated Canadian RDSP. In addition to the following press release, visit The Bank of Montreal’s website for more information:
New RDSP enables families to save tax-free for future of disabled Canadians
By The Canadian Press
TORONTO – Families of people with disabilities will be able to set up tax-free savings plans under a long-awaited measure enacted by the federal government.
The registered disability savings plan – RDSP – “is about helping bring more independence to families of persons with disabilities, who are facing challenges, particularly financial challenges, when planning their future,” federal Human Resources Minister Diane Finley said in presenting the program Tuesday.
The RDSP had been proposed in the Conservative government’s March 2007 budget but became effective only this month.
“You know how government works – here we are the end of 2008,” joked Finance Minister Jim Flaherty, joining Finley for the announcement in the lobby of a children’s rehabilitation centre.
The government estimates 280,000 Canadians are eligible to open RDSPs, allowing parents and others to set aside funds for a child with a severe disability.
Ottawa will provide matching grants of up to $3,500 per year, plus a $1,000 bond each year for families with incomes under $37,885. Each RDSP has a lifetime contribution limit of $200,000 from the family and $70,000 from the government.
The program is expected to cost Ottawa about $200 million a year in contributions and forgone taxes.
Flaherty said the deadline for opening an RDSP and making contributions for 2008 has been extended to March 2.
RDSPs are intended for individuals who qualify for the disability tax credit, their families and others. Unlike a registered retirement savings plan, contributions are not deductible. But the money grows grow tax-free and will not be included in taxable income when withdrawn.
Income paid out of RDSPs also will not affect federal income-tested benefits, such as Old Age Security, the Canada child tax benefit and the goods and services tax credit.
The federal government has negotiated with the provinces and territories, and RDSP income and assets will be excluded from benefit clawbacks in Newfoundland and Labrador, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia and the Yukon.
Quebec, New Brunswick and Prince Edward Island are exempting RDSP payments from income support calculations up to set limits. In the Northwest Territories, a limited exemption will be allowed.
“We are leading the world in this initiative, and I expect it will be copied in many places around the world,” Flaherty said, explaining that the program’s lengthy lead time arose from the complexity of progressive social and tax policy, including getting other governments onside in not taxing or clawing back the program’s income.
Bank of Montreal, the first major financial institution offering RDSPs, said it received about 600 inquiries on the opening day of the program.
ESTÉE KLAR
please note that funds removed before the beneficiary turns 60 are heavily penalized. Here is the language from the BMO application:
10. DISABILITY ASSISTANCE PAYMENTS
If the total amount of all Government Funded Benefits paid into this and any
other Registered Disability Savings Plan of the Beneficiary before the beginning
of the calendar year exceeds the total amount of contributions (other than as a
transfer in accordance with section 11) paid into this and any other Registered
Disability Savings Plan of the Beneficiary before the beginning of the calendar
year, then the following conditions must be adhered to:
a. If the calendar year is not a Specified Year for the Plan, the total amount of
Disability Assistance Payments made in the year from the Plan will not
exceed the amount determined by the formula in paragraph 146.4(4)(l) of
the ITA in respect of the Plan for the calendar year. When calculating the
total amount, a transfer as detailed in section 11 is to be disregarded if
payments are made in lieu of those that should have been made under the
prior plan of the Beneficiary as described in paragraph 146.4(8)(d) of the
ITA. A transfer as detailed in section 11 is to be disregarded if the transfer is
made in lieu of a payment that would have been permitted to be made
from the other plan in the calendar year if the transfer had not occurred.
b. If the Beneficiary has reached 27 years of age but not 59 years of age
before the particular calendar year, the Beneficiary may direct that one or
more Disability Assistance Payments be made from the Plan in the year
provided that the total of all Disability Assistance Payments made from the
plan in the year do not exceed the amount imposed by the constraints of
paragraph a. of this section. These payments may not be made from the
Plan if the fair market value of the property held by the Plan Trust,
immediately after the payment is made, would be less than the Assistance
Holdback Amount in relation to the Plan.
Thanks, Jypsy!
I was going to use it. But some of the banks aren’t ready for the program yet. So I’m debating the Tax Free Savings Account for now.
Reading Jypsy’s post I’m going to have to look into them farther before I decide what to do.
S.