Saving for future of disabled people

National Post


Last week's column on the new registered disability savings plan (RDSP) generated more reader response than anything I've written. The focus last week was on the generous government assistance in the form of up to $70, 000 in Canada Disability Savings Grants (CDSGs) and $20,000 in Canada Disability Savings Bonds (CDSBs).

This week, let's review some of the other rules for the new RDSPs.

To summarize, the RDSP is a new type of tax-deferred savings plan that allows the plan holder to save up to $200,000 on behalf of a disabled beneficiary (59 years of age or under), and qualifies for the federal disability tax credit (DTC).

The credit is available to an individual with a severe and prolonged physical or mental disability. To qualify, a medical doctor or other medical specialist must certify Form T2201, "Disability Tax Credit Certificate," which must then be approved by the Canada Revenue Agency.

Note that while the plan can be set up to age 59, the grants and bonds can be paid into an RDSP only until the end of the year in which the beneficiary turns 49.

If you're thinking you can simply open up the account for a few years, collect some government contributions and then withdraw all the money, think again. There is a special rule that requires all CDSGs and CDSBs paid into an RDSP in the 10 years preceding a withdrawal from the plan to be repaid to the government.

This rule was put into place to ensure that RDSPs are used to promote "long- term savings" on behalf of a disabled person, as well as to prevent the grants and bonds from being "recycled" through withdrawals to obtain future years' matching grants.

The holdback rule also requires repayment should the disabled person die or no longer be eligible to claim the DTC.

If the specific RDSP permits, withdrawals can be paid out at any time, but must begin no later than the year the disabled beneficiary turns 60. There are limits as to how much can be paid out, and in cases where the total amount of CDSGs and CDSBs exceeds the amount privately contributed, there is a minimum payout requirement as well. The payments can be used for any purpose.

The rules are continuously evolving, so it's important to keep up to date. For example, in December, the government extended the application period for the 2008 bonds and grants to March 2. And this past week, the British Columbia government announced a $5-million grant to help residents with disabilities increase their savings through the RDSP. Called "Endowment 150," the fund will allow any resident on income assistance to apply for $150 once they have set up an RDSP with $25.

For more details on how RDSPs work, visit, a site set up and maintained by Vancouver-based Planned Lifetime Advocacy Network, a non-profit organization.