By R.A. (Bob) Challis, CFP, RHU, TEP, The Nakamun Group, Winnipeg
Caring for a loved one afflicted with a severe or prolonged disability can be financially challenging. A Registered Disability Savings Plan (RDSP) is a simple and relatively inexpensive way to significantly impact the future financial security of anyone who qualifies for the Federal Disability Tax Credit.
The RDSP, introduced in 2008, is one of Canada’s most generous social programs, offering significant government grants and income tax benefits. The 2010 Federal Budget made two important improvements to the RDSP — carry forward of Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) entitlements, and more flexible transfer provisions.
Carry Forward of Grant and Bond Entitlements
Since January 2011, qualifying RDSP contributors and eligible beneficiaries can claim unused CDSG and CDSB entitlements from the previous ten years. The beneficiary must be aged 49 or younger at the time the unused entitlements are claimed. The amount that can be claimed is determined by the beneficiary’s family income during the time the unused entitlements were accumulated, and the amount contributed to the RDSP. The annual maximum for a matching CDSG is $10,500, to the beneficiary’s lifetime maximum of $70,000; and annual maximum CDSB is $11,000 to a lifetime maximum of $20,000.
The carry-forward of unused entitlements applies whether an RDSP was already opened in January 2011 or was subsequently opened.
Transfer of Retirement Savings to an RDSP
As of July 2011, parents or grandparents of a financially dependent child or grandchild with a disability are allowed to transfer retirement savings tax free to the child or grandchild’s RDSP when the parent/grandparent dies. The retirement savings must be in a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), or Registered Pension Plan (RPP). Matching CDSGs are not available on these transferred funds.
The maximum transfer amount possible is $200,000, which is the lifetime contribution limit to an RDSP. If, for instance, an RDSP already contains $50,000 in private contributions, the maximum transfer allowed would be $150,000.
Note: RDSPs have no impact on other federal benefits such as the Canada Child Tax Benefit, Goods and Services Tax Credit, Old Age Security, and Employment Insurance; and little or no impact on social assistance payments.
If someone in your family qualifies for the Federal Disability Tax Credit, consider a RDSP, with its attendant CDSGs and CDSBs, to improve the individual’s future financial security. Contact your Nakamun Advisor to learn more.