Feb 23, 2020
RDSP (H1)
Rob:
We're talking about RDSPs today, Registered Disability Savings Plan. I'm Rob Tétrault from robtetrault.com. Head of the Tétrault Wealth Advisor Group here at Canaccord Genuity Wealth Management. Today we’re here with Adam Buss, Wealth and Estate Planning Specialist here at Canaccord Genuity, to talk about the RDSP. The RDSP, so where do we begin?
Adam:
Well, it is specifically designed for those who qualify for the DTC, the disability tax credit. We do have another video on the disability tax credit, so please click and enjoy that one as well. But the RDSP is a savings plan to basically save for the financial future. For somebody who has a qualified disability, it's a plan the government throws a pile of free money towards. So comparable to the RRSP and the RESP, because we love acronyms, we're going to throw all those out. But basically, the contributions that you make towards this plan are not tax deductible. For example, you put $1,000 in, you don't get a tax receipt, unlike the RRSP’s case. It's a bit like the RESP in that way. The government does throw in some matching grants on that, which can be quite favorable depending on your income level.
Rob:
Let's talk about those grants. Could I open an RDSP in theory, for a beneficiary, I would imagine?
Adam:
Yeah, maybe a parent opening one for a child who's a beneficiary, or an individual who has a qualified disability opening one for themselves.
Rob:
Okay, and then there's grants for the first $3,500, there are matching grants. So basically 300% for the first 500 dollars.
Adam:
You bet. 300% return on your first $500 of contribution.
Rob:
That means you're getting $1,500 not bad, 200% on the next thousand, that's another $2000. And then 100% for the last thousand. That is a lot of grants. There is a lot of grant money coming out and there's some family income rules with respect to that. You must be making less than $93,000 per year.
Adam:
That's to qualify for those grants. Anything above that income level I’m pretty sure it's 100% matching only, which dollar for dollar on the first thousand dollars is still a pretty good deal.
Rob:
It's a pretty good return. That's not bad. Most portfolio managers would be thrilled with that return. Let's talk about the bonds themselves. I understand there could be even more money thrown at you if you make less than another threshold.
Adam:
Yeah. If a family has a lower income level, you can get additional bonds that are thrown into the account even without you having to put a dollar in. I think it's $1,000 per year up to a maximum of $20,000.
Rob:
Wow, that's very, very good. Okay, now we open this account. Maybe I had the DTC now for five years. Can I go back?
Adam:
You can. Absolutely. Let's say for a couple of years, maybe you're in low income, you can't afford to put a lot of money into there. And you come into some money or you get a gift at some point and you can put a large amount in and make up for some of those unused years of room. You can get a big pile of grant money in one lump sum and carry forward up to 10 years.
Rob:
Okay. Now the DAP, the disability assistant payment, that's for age 60 and beyond. And then would that be taxable on the way out?
Adam:
Any money that you put into the plan you can take out tax free. It's your money. Any money that the government put in, or growth on the account, is all taxable when the money comes out essentially. It does provide you with an income for your retirement time.
Rob:
That's very similar to the RESP. Very similar in that regard for the grant and the growth are taxable in the individual who pulls it out in their name. Now, I guess the idea here for planning wise is that one, you're getting a ton of money upfront from the government. Two, It's growing tax free inside the account. That's a big part, right? You're not paying tax on the income that's being generated inside the RDSP. And I guess finally in theory, as you're withdrawing this money, you could potentially be in a lower tax bracket at that age, you've had all those years of deferred growth.
Adam:
Yeah, generally, maybe some individuals with a qualified disability don't have the same potential of earnings throughout their lifetime, but their family wants to make sure that they have the money come retirement to look after themselves. This is a great way to try to protect their benefits that they're receiving from the government on a regular basis, which is why all that income is sheltered within the plan.
Rob:
If you get started early here, I could just see these accounts could get fairly large. I would imagine.
Adam:
Which is probably why the government did put a cap on the contribution limit of, I think it's $200,000 for a lifetime contribution and up to $70,000 of grant money.
Rob:
Right. And the contributions, you can make them up until you're 59 and no more grants after you're 49.
Adam:
Yeah, you don't have to weigh the pros and cons. Does it make sense to put money in past the age of 49 or not, as you aren't getting any free government money? There are situations where it does make sense.
Rob:
Yeah, you're putting $2,500 and you're getting $3,500 in matching. That's pretty neat. Now do they count, do they affect any future government sponsored benefits?
Adam:
Typically not. I mean, every province does set their own rules as to what qualifies and what doesn't qualify as income for reducing the government benefits. But the idea behind it is hopefully that it doesn't affect your government benefits. Always recommend checking with your provincial governing body.
Rob:
Now they talk about bonds. Does that mean that in the investment account you have to have bonds or could you put whatever you want in that investment account?
Adam:
Now you have a few more investment options. It's not an actual bond. It's basically just a gift of money that the government's giving, but you do have a lot of investment options at your disposal.
Rob:
You open an RDSP, you can put effectively stocks, bonds, debentures, preferred shares, alternatives, equities, ETFs, mutual funds. You could put whatever you want in that portfolio.
Adam:
There's a certain limitation. There's a few providers out there that don't provide services for RDSPs. But the best place to get the answers is to come to Rob Tétrault and figure out what is the investment options that are available for your RDSP account.
Rob:
And to do that, you'd go to www.speaktorob.com, to book a no obligation free consultation. Adam, it's been a pleasure, a real pleasure chatting with you today about the registered disability savings plan.