RDSP Demystified: The RDSP Starter Pack Every Beginner Needs!
RDSP Demystified: The RDSP Starter Pack Every Beginner Needs!
Detailed Video On Its Way!
I am currently working on a VERY detailed YouTube video, where I’ll break down everything you need to know about the Registered Disability Savings Plan (RDSP). From who can benefit to how government contributions work and the role of the Disability Tax Credit, I’ll cover it all in a simple and easy-to-follow way. HOWEVER, While you are waiting for that, this introductory article offers a small sneak peek into the upcoming video that will be your go-to guide for understanding the RDSP inside out. Until then, this of course will have to do!
IN THE MEANTIME! HERE IS A SAMPLE OF ME IN ACTION! SUBSCRIBE TO ME ON YOUTUBE!
What Is The RDSP?
The RDSP, or Registered Disability Savings Plan, is a nationwide savings program designed specifically for individuals with disabilities in Canada, aiming to assist them in building financial resources for the future. The uniqueness of this plan lies in its matching feature — for every dollar contributed, the government generously matches it with up to three dollars! This translates to a significant accumulation of complimentary funds.
RDSP Is Not Widely Understood
The registered disability savings plan (RDSP) stands out as a highly valuable resource for Canadians facing disabilities. Despite its launch in 2008, a mere fraction — less than a third — of eligible Canadians under the age of 59 have embraced the opportunity by opening an RDSP account, as per a 2020 survey by Statistics Canada. Recognizing the urgency of this situation, wealth advisers play a crucial role in raising awareness about the RDSP’s benefits. By doing so, they empower their clients to be better equipped for unforeseen challenges and difficulties.
Here are some simple basics to help you begin
Why You Should Choose The RDSP
With the RDSP, you can add up to $200,000 without impacting your disability benefits, and even when you withdraw money. Additionally, you may qualify for up to $90,000 from the government through the Canada Disability Savings Bond and the Canada Disability Savings Grant.
Low Income? Not an Issue
The RDSP is particularly advantageous for individuals with low incomes. With the Canada Disability Savings Bond, you can receive up to $20,000 in government contributions without making any personal contributions. Moreover, any funds you do contribute can be matched by the government at a rate of up to $3 for every $1 through the Canada Disability Savings Grant.
Can you Clarify “up to $3 for every $1 you put in”?
If the beneficiary earns $100,392 or less:
- For the initial $500 contributed to the RDSP, the beneficiary gets $3 for each $1 contributed.
- For the following $1,000, the beneficiary receives $2 for every $1 contributed.
- The maximum grant in a single year is $3,500, with a lifetime cap of $70,000.
If the beneficiary’s income exceeds $100,392:
- For the initial $1,000 contributed to the plan, the beneficiary gets $1 for each $1 contributed.
- The maximum grant in any given year is $1,000, and the lifetime maximum is $70,000.
It’s worth noting that a beneficiary could receive the full $3,500 grant in one year and $1,000 the following year, contingent on their income from two years prior.
What Are The Age Requirements To Open Up An RDSP?
An RDSP can be established for anyone under the age of 59 with the Disability Tax Credit. Opening an RDSP account early is advisable to maximize government and personal contributions, benefit from compounded interest, and enable withdrawals at a younger age. It’s crucial to note that government contributions cease after the age of 49. Hence, initiating the process promptly ensures optimal benefits. Don’t delay — start your RDSP journey as soon as possible!
What Documents Do I Need To Open Up An RDSP?
To be eligible for an RDSP, you need:
- A valid Social Insurance Number (temporary or permanent).
- An approved Disability Tax Credit.
- Residency in Canada.
- Important: Government contributions are only available if you have filed income taxes for the past two years. If the beneficiary is a child, it is advisable to begin filing their income taxes in the year they turn 17. This is because, upon reaching 19 years old, grant and bond eligibility is determined based on their family income rather than their legal guardians.
What is the Disability Tax Credit?
The Disability Tax Credit (DTC) is a non-refundable tax credit available to individuals with severe and prolonged disabilities. Upon eligibility, the person with the qualifying disability or one of their caregivers can claim this tax credit when filing income taxes, helping reduce the amount owed to the Canada Revenue Agency (CRA). It’s important to note that eligibility for the DTC is a prerequisite for opening an RDSP.
To apply for the Disability Tax Credit (DTC) in Canada, you need to follow these steps:
- Obtain the Disability Tax Credit Certificate (Form T2201): The first step is to get the Disability Tax Credit Certificate (Form T2201). This form must be completed by the person with the disability or their legal representative.
- Complete the Form T2201: The form consists of two parts. Part A is to be completed by the individual with the disability or their representative, providing details about the medical condition and how it affects daily activities. Part B is to be completed by a qualified medical practitioner, such as a doctor or nurse practitioner, who can certify the nature and effects of the disability.
- Submit the Form T2201: Once the form is completed, submit it to the Canada Revenue Agency (CRA). It’s essential to include all relevant supporting documents and medical documentation that can help verify the disability.
- Wait for Approval: The CRA will review the application, and if approved, they will notify you in writing. The approval is retroactive, meaning you may be eligible for credits for previous years.
- Claim the DTC on Your Income Tax Return: After receiving approval, you can claim the Disability Tax Credit on your income tax return. You can also transfer the credit to a supporting person if the person with the disability does not have taxable income.
It’s important to note that the DTC is not automatically applied — you need to go through the application process. If you have questions or need assistance, consider consulting with a tax professional or contacting the Canada Revenue Agency directly.
In The End
In conclusion, the Registered Disability Savings Plan (RDSP) stands as a powerful financial tool offering unprecedented benefits to Canadians living with disabilities. From government contributions and grants to the potential for significant tax savings through the Disability Tax Credit (DTC), the RDSP opens avenues for enhanced financial security and independence. As we’ve explored the eligibility criteria, contribution opportunities, and the crucial link with the DTC, it is evident that early and informed participation in the RDSP program can make a profound difference in the lives of individuals with disabilities. By maximizing contributions, leveraging government support, and navigating the application process for the DTC, Canadians can pave the way for a more financially resilient and empowered future. It is not just an investment in monetary terms but a commitment to fostering inclusivity and support for those facing unique challenges. Embracing the RDSP is not just a financial decision; it is a step towards a more inclusive and equitable society.
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Have Questions? Contact us!
We’ve assisted our clients through every stage of life. Even when you’re not aware that something might impact your financial future, it likely will to some extent. Engaging in a conversation with your investment advisor about any financial changes is an excellent approach to keeping your financial goals in focus.
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For more information or to connect with me, you can reach out via email at macekadmin@iaprivatewealth.ca or get to know me better by exploring my engaging video content on YouTube
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Don’t hesitate to reach out today at 1–888–324–4259 to discover more about how we can help you achieve your investment milestones.
Joe A. Macek, FMA, CIM, DMS, FCSI
Investment Advisor, Portfolio Manager
iA Private Wealth
Toll Free North America: 1–888–324–4259
Email: macekadmin@iaprivatewealth.ca
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This information has been prepared by Joe Macek who is an Investment Advisor Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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