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Canada's new Registered Disability Savings Plan is a tax-free
vehicle to help parents save for the long-term needs of children
with severe disabilities.
The deadline for setting up a 2008 plan - which was announced by
Finance Minister Jim Flaherty at Bloorview Kids Rehab in Toronto
in December - has been extended to March 2, 2009.
"The number one worry of parents who have a child with special needs
is 'what happens when I'm not here to support my child?'" says Brett
Langill, a certified financial planner with Brownstone Investment
Planning in Toronto. "The RDSP includes good government contributions,
tax-deferred savings and is easy to set up, making it the best long-term
savings vehicle for this population."
Langill has two children with disabilities and plans to set up a
plan for each. "This is a great opportunity for families, whether
they're in a high-income, low-income or zero-income category," he
says.
Anyone who is eligible for the Disability Tax Credit can establish
a plan and parents of children under the age of 18 can set up and
direct the RDSP on their child's behalf.
Federal contributions are greatest for families with lower incomes.
For families earning under $75,769 each year, the Canadian Disability
Savings Grant will contribute $3 for every $1 contributed on the
first $500. It then puts in $2 for every $1 on the next $1,000.
"So, if a family puts $1,500 into the plan, the government provides
grants of $3,500 on top of that," Langill says. "For a $1,500 contribution,
a family suddenly has $5,000 in the plan. That's a big difference.
Even if a family can only manage $300, they'll get three times that
from the government grant - $900. The grants are very compelling
at this threshold."
For families earning above $75,769, the government contributes a
grant of $1 for every $1 families put in up to $1,000.
And for families with income of less than $21,287, the Canadian
Disability Savings Bond puts $1,000 into the plan each year without
any family contribution.
Once the child with a disability turns 18, eligibility for grants
is determined by that individual's income only.
The plans have a lifetime limit of $200,000 and government grants
and bonds are paid into the plan until the beneficiary turns 49
years old. Any money withdrawn in the first 10 years will result
in the grant portion being returned to the government.
"Families of children with disabilities have lots of short-term
financial needs, so it's important that they only pay into the plan
what they can leave to grow over the long-term," Langill says. While
the plans are straightforward to set up, Langill says it's ideal
to have a financial planner with expertise in the area of special
needs take a look at your overall financial picture.
The Bank of Montreal is the only national institution offering the
plans to date, and "has worked hard with the government to get this
going," Langill says. "The plan is well thought out and I'm excited
about it. I'll definitely be setting one up for my son, Tomas, who
has autism. And I think I'll do one for Nydia, my daughter who has
cerebral palsy, as well. Regardless of what she's doing in life,
it's money set aside to help her later on."
For more information, go to www.bmo.com,
click on personal finances, then click on investments and RDSP.
Or call 1-800-665-7700.
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