Building financial security for Canadians with disabilities

Registered Disability Savings Plans

Why RDSPs are the best way to save

1. Anyone can contribute to an RDSP with the written consent of the account holder

2. The total lifetime contribution for each beneficiary is $200,000, with no annual contribution limits

3. Contributions can be matched, based on family income, with up to $3,500 a year in Canada Disability Savings Grants and up to $1,000 a year in Canada Disability Savings Bonds

4. The money you contribute grows tax free

5. Savings and withdrawals do not affect federal and provincial income-tested benefits

Who qualifies for an RDSP?

You qualify to be an RDSP beneficiary if you are eligible for the Disability Tax Credit, a resident of Canada, less than age 60 and have a valid Social Insurance Number.

How to open an RDSP account

• If you haven’t already, apply for the Disability Tax Credit (see www.cra-arc.gc.ca/disability)

• See your financial advisor to open an RDSP

Take advantage of Government help

• Canada Disability Savings Grant - Through the CDSG, the Government deposits money into your RDSP to help you save, providing matching grants of 300%, 200% or 100%, depending on the amount contributed and the beneficiary’s family net income. The maximum is $3,500 each year, with a lifetime limit of $70,000.

• Canada Disability Savings Bond - Through the CDSB, the Government deposits

money into the RDSPs of low-income and modest-income Canadians. If you qualify for the

bond, you could receive up to $1,000 a year, with a lifetime limit of $20,000.

Withdrawing your money

RDSP withdrawals must begin by the end of the year you turn age 60. You may withdraw funds earlier, but be sure to note that once a withdrawal of any amount is made, all federal grants and bonds paid into the RDSP in the previous 10 years have to be repaid.  Withdrawals will consist of non-taxable contributions, taxable Government monies and taxable growth.

How your money can grow: an example

Jack, whose family income is less than $21,287 a year, opens an RDSP at age 19 and contributes $1,500 a year until he is age 49, investing the money in a balanced mutual fund that returns 5.5% annually. Even though his annual contributions only total $46,500 ($1,500 x 31 years), when those contributions are combined with Canada Disability Savings Grants and Canada Disability Savings Bonds, by age 50 Jack will have accumulated $398,891.

• Your annual contribution of $1,500 = $46,500 total

• CDSB of $1,000 a year to a maximum lifetime amount of $20,000

• CDSG of $3,500 a year to a maximum lifetime amount of $70,000

• Results in $398,891 plan total

Top 3 tips to maximize savings

1. Start saving early. Make it automatic by enrolling in a pre-authorized chequing program.

2. Contribute every year to get the maximum annual Canada Disability Savings Grant and Canada Disability Savings Bond, if applicable.

3. Plan your withdrawals to avoid federal grant and bond repayments.

To open an RDSP, please talk to your financial advisor.  If you know of someone who could qualify, be sure to send them this article.

The New Pooled Registered Pension Plan

The pooled registered pension plan, or PRPP, is a new savings vehicle being introduced by the Canadian government. Here's what it might mean for you.

On November 17, 2011, the Canadian government introduced legislation that will give Canadians yet another way to save for retirement. The pooled registered pension plan (PRPP) will be targeted to people whose workplace doesn't offer pension plan options -- mostly small to medium-size businesses and the self-employed. While the details are still being worked out and may change, here are five things you should know about this new savings vehicle.

Why introduce the PRPP?
Many Canadians -- an estimated 3.5 million, mostly people who work for smaller companies that don't offer any employee retirement savings options -- don't have any sort of pension plan. The government wants to offer us yet another way to save for retirement.

How will the PRPP work?
If small to medium-size businesses use a PRPP, they'll automatically deduct an amount from employees' paycheques to put into this savings account. However, businesses won't have to top up funds through the PRPP program, and employees can opt out of participating, which leads some experts to question the value of the program as opposed to a simple RRSP.

Where does the PRPP money go?
PRPPs will be offered to small businesses by the usual financial suspects: banks, insurance operations, fund companies and, likely, anyone else who offers financial products. Money would be put into an account and then the institutions would invest that dough in the hopes that it will grow. Because it's the financial institutions doing the investing, some people say this will make PRPPs cheap and easy to set up. But that remains to be seen.

What will be the investment strategy?
That's still unclear, but since its retirement savings we're talking about, it's highly likely that plan administrators will invest the cash in balanced funds -- funds that typically hold 60 per cent equities and 40 per cent bonds. That lets people grow some of their money (via the stock portion) and protect against downturns (with bonds). Usually, financial institutions offer plan members (the company) and its employees an array of options related to risk tolerance.

What are the drawbacks to the PRPP?
Many experts say this is nothing more than a glorified RRSP and that if people don't have a registered account now -- and many don't -- then they won't suddenly start using a PRPP. Another option for the government to look at was increasing employee contributions to the Canadian Pension Plan, which people can't opt out of, but they chose instead to give business owners the option to help their staff save via top-ups.

It's still too early to say exactly what the PRPP will look like, or if anyone will buy in, but having more savings options is never a bad thing. Depending on the uptake, smaller companies could offer this as an extra incentive to prospective employees. At the very least, those who do use it will, hopefully, have a larger nest egg come retirement time.

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