If you have a Disabled Child, Get the Help You Need to Setup a RDSP (Registered Disability Savings Plan) – It will make a difference
Brendan Greenwood CIM, QAFP, B.Comm | July 26, 2021
Consider the following scenario similar to a family I know. Mike and Nardine have a son Evan who qualifies for a disability tax credit. The family has considerable expenses that come with caring for Evan including therapy and respite services. To help deal with the additional financial obligations of caring for their son they had sought advice on whether to open an RDSP for Evan.
Unfortunately the merits and operation of RDSP’s are not well understood by many financial advisors. They were told that they were better off directing money to other types of savings plans because their family income was above the eligibility threshold to receive the maximum amount of Canada Disability Savings Grants (CDSG). In addition, they were not eligible for the Canada Disability Savings Bond (CDSB).
The value of a second opinion
Several years later and increasingly concerned about the need to provide long term support for their son, they sought a second opinion from an advisor who had helped a friend with similar challenges with one of their children. At this point their son Evan was a struggling 15 year old adolescent and needed additional resources to help him cope.
During the discussion with the new advisor the family explained that they had been previously advised not to setup an RDSP for their son because their income eliminated most of the government RDSP benefits. The advisor explained that even a relatively small monthly contribution could still make a big difference. The decision was made to start a plan for Evan with an affordable contribution of $62.50 twice a month totalling $1,500 per year.
What helped the family to make the decision was the potential impact after age 15 when Evan reaches 29.
All money going into the RDSP was assumed to be invested and grow at an annual compound rate of 6%. Contributions in the first four years would only attract Canadian Disability Savings Grants of $1,000 annually. However, when Evan turns 19, even though he will still be dependent and live with his parents, his treatment under the RDSP program changes. Only his own income is used to calculate the family net income for purposes of CRA’s income threshold test. As a result, at 19 his RDSP became eligible for both $3,500 in CDSG and $1,000 in CDSB annual grants.
As the schedule below illustrated, by Evan’s 29th birthday his RDSP will have accumulated over $117,000 through nominal contributions by his family totalling only $22,500 over the 15 year period.
Final Thoughts
For any family, the RDSP can be a powerful tool to accelerate growth in savings to provide for the future needs of a disabled child. If you’ve written off the RDSP in the past, consider reaching out to an advisor and re-visiting whether it can make a meaningful difference for your family.
Brendan Greenwood is an Investment Advisor with Worldsource Securities focused on personal pension strategies and leveraging technology to provide progressive institutional style investment solutions for professionals, incorporated individuals, business owners, retirees and their families.
For other articles authored by Brendan Greenwood on issues impacting business owners and individual investors see https://www.greenwoodwealth.co/blog.
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