Registered Disability Savings PlansProvide for the people you care about
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Approximately 1.7 million Canadians report having a severe disability.1
Individuals living with disabilities and their loved ones face distinct financial challenges throughout their lives. The individuals involved and their family members often worry about what the future will bring and how they can prepare for it. Setting up a Registered Disability Savings Plan (RDSP) makes it easier through a combination of government assisted savings and tax-deferred growth opportunities. Working together, with the right advice and a long-term plan, an RDSP can ease financial uncertainty by creating a pool of capital designed to provide for life’s essentials for many years to come.
2
Who can benefit?
An RDSP may be established for a beneficiary who:
3 Is eligible for the federal disability tax credit (DTC)
3 Is a resident of Canada
3 Has a valid Social Insurance Number and;
3 Is turning age 59 or younger in the year
Where to begin
The person who opens the plan, called the holder, makes decisions such as determining contribution amounts, selecting investments and managing withdrawals. This can be a parent, legal guardian or qualifying family member of the disabled individual, or it can be the disabled individual, provided he or she is of the age of majority and legally competent to sign a contract.
Saving for a lifetime
A maximum of $200,000 can be contributed per beneficiary. Any friend or family member can make a contribution toward the RDSP, with the holder’s permission. This ensures the holder can plan to maximize government grants and the lifetime contribution limit.
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Government funds add to savings
The Canada Disability Savings Grant (CDSG) is a matching grant that the government will deposit into the RDSP. Grants of up to 300% are available, depending on the amount contributed and the beneficiary’s family income. A maximum entitlement of $3,500 each year can be generated with a limit of $70,000 over the beneficiary’s lifetime. Unused grant entitlements will carry forward for up to 10 years.
Family income generally means:
3 If the beneficiary is turning 18 years or younger during the year, then the income of his or her parents;
3 If the beneficiary is turning 19 years or older during the year, then the income of the beneficiary and the income of the beneficiary’s spouse or common-law partner, if applicable.
For example:
The Canada Disability Savings Bond (CDSB) is available to Canadians with a low or modest family income. The bond can be added to an RDSP, even if no contributions are being made. A maximum entitlement of $1,000 each year can be generated with a limit of $20,000 over the beneficiary’s lifetime. Unused grant entitlements will carry forward for up to 10 years.
For example:
*2015 thresholds
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$89,401 or less
Total contribution $1,500On the first $500 contributedOn the next $1,000 contributed
300%200%
$1,500$2,000
$3,500
More than $89,401
On the first $1,000 contributed
100% $1,000 $1,000
FAmily inCome*
CDSG mATChinG rATe
CDSG reCeiveD
ToTAl CDSG reCeiveD
ConTriBuTionS
$26,021 or less $1,000
Between $26,021 and $44,701 $1,000, reduced on a pro-rated basis
More than $44,701 No bond is paid
FAmily inCome* CDSB reCeiveD
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For example:
But, beware of the 10-year rule…
When it’s time to withdraw or the RDSP is closed, keep in mind that all federal grants and bonds deposited in the previous 10 years (referred to as the “assistance holdback amount”) may become repaid to the federal government. The amount repaid will be the lesser of:
3 The assistance holdback amount, or
3 3 times the amount withdrawn.
For example:
Khalid, age 35, has an RDSP that his family has been contributing to for the past 20 years. Khalid wishes to withdraw $2,500 from his RDSP to purchase a used car.
Details of his plan are as follows:
Plan value: $194,963Contributions: $30,000Tax-deferred growth: $94,963CDSG: $70,000, of which $35,000 is from the last 10 yearsCDSB: $0 (his family income has always exceeded the bond threshold)
Khalid’s withdrawal will cause a repayment of $7,500, representing the lesser of $35,000 (i.e., the assistance holdback amount, which is the total of all CDSG and CDSB received by the plan in the 10-year period before the withdrawal), and $7,500 (i.e., 3 times the $2,500 withdrawal).
Peter, age 26, is single and his annual income from his part-time job is $11,000, which makes him eligible for the maximum $1,000 CDSB, whether or not any contributions are made to his RDSP.
If the beneficiary dies, and in most cases where the beneficiary ceases to be DTC-eligible, the RDSP will be closed and federal grants and bonds received in the previous 10 years repaid. The remainder will go to the beneficiary’s estate or to the beneficiary.
Because of the repayment provisions, rDSPs are best-suited for long-term savings.
Savings that grow tax-deferred
The earlier contributions into an RDSP begin, the longer the investment will have to build year over year. During this time, no taxes are payable on the annual growth. Using the power of compound growth and the benefits of tax deferral, your loved one will have more money for the future.
6
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5 0 , 0 0 0
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7
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$ 4 4 , 7 0 1
b e t w e e n $ 4 4 , 7 0 1 &
$ 8 9 , 4 0 1
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C o n T r i B u T i n G $ 1 , 5 0 0 / y e A r F o r 2 0 y e A r S , 6 % r AT e o F r e T u r n
233,957
214,461
194,963
97,483
113,957
20,000
104,461
70,000
94,963
20,000
47,483
30,000 30,000 30,000 30,000
va
lu
e (
$)
fa m i ly i n c o m e ( 2 0 1 5 t h r e s h o l d s )
70,000 70,000
10,000
D e F e r r e D G r o W T h C D S G
C D S B P r i vAT e C o n T r i B u T i o n S
Getting the right advice
Depending on your individual situation and taking the beneficiary’s needs into consideration, we will help you determine whether a lump sum or periodic contributions are better for you. There is a balance to strike between maximizing tax-deferred growth and considering cash flow needs.
8
4 0 , 0 0 0
$ 1 0 , 0 0 0 lu m p s u m
$ 2 , 0 0 0 / y e a r f o r 5 y e a r s
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p o t e n t i a l r d s p va lu e s at t h e e n d o f f i v e y e a r s 3
$ 1 0 , 0 0 0 lu m P S u m v S . $ 2 , 0 0 0 / y e A r F o r F i v e y e A r S ; 6 % r AT e o F r e T u r n
18,066
32,864
am
ou
nt
($
)
4,556
5,364
17,500
3,500
10,000 10,000
Annual contributions of $2,000 over 5 years produce a higher grant amount and a higher investment return than a $10,000 lump sum contribution.
D e F e r r e D G r o W T h
C D S G P r i vAT e C o n T r i B u T i o n S
Annual contributions of $40,000 over 5 years produce a higher grant amount but a lower investment return than a $200,000 lump sum contribution.
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4 0 0 , 0 0 0
$ 2 0 0 , 0 0 0 lu m p s u m
$ 4 0 , 0 0 0 / y e a r f o r 5 y e a r s
3 0 0 , 0 0 0
2 0 0 , 0 0 0
1 0 0 , 0 0 0
0
p o t e n t i a l r d s p va lu e s at t h e e n d o f f i v e y e a r s 3
$ 2 0 0 , 0 0 0 lu m P S u m v S . $ 4 0 , 0 0 0 / y e A r F o r F i v e y e A r S ; 6 % r AT e o F r e T u r n
272,329259,926
am
ou
nt
($
) 68,829
D e F e r r e D G r o W T h
C D S G P r i vAT e C o n T r i B u T i o n S
200,000
17,500
42,426
200,000
3,500
Talk to us – we can help
With the challenges faced by disabled individuals and their families each and every day, it is important to ensure that financial circumstances do not further complicate their lives. From reviewing your estate plans, to setting up an RDSP, to ensuring you have the right insurance in place, your Investors Group Consultant is here to help.
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important information you need to know
Contributions
3 The account must be opened and contributions must cease by the end of the year the beneficiary reaches age 59.
3 Grants and bonds are payable until the end of the year the beneficiary reaches age 49.
Withdrawals
3 Are known as Disability Assistance Payments (DAPs) and must begin in the year in which the beneficiary turns 60. Depending on the circumstances, the amount eligible for withdrawal in any given year may be limited.
3 Do not impact federal benefits, such as Old Age Security, the Canada Child Tax Benefit, the Goods and Services Tax credit and Employment Insurance.
3 Will usually have no impact on provincial and territorial social assistance payments.
3 Are paid to the beneficiary and the beneficiary is taxed on the CDSG, CDSB and tax-deferred growth portion of the withdrawal.
3 May cause a claw-back of some or all of the grants and bonds received by the plan within the last 10 years. This is referred to as the “10-year rule”.
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1 The 2006 Participation and Activity Limitation Survey, Statistics Canada.2 Assumes the following:
• The rate of return is 6%. • The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on investment in the mutual fund. • In the first year: – Family income is within the 2014 income thresholds indicated, and is adjusted accordingly in later years. – The beneficiary has no accumulated CDSG or CDSB room. • Contributions, CDSG, and CDSG are applied to the account at the start of each January as annual lump sums. • The beneficiary is at all times DTC-eligible. • At the time of any contribution, the beneficiary is: – a resident of Canada; and – turning 49 or younger in the year. • No withdrawals are made from the RDSP during the period examined.
3 The same assumptions as footnote 2 are made, however: • Family income is between the 2015 income thresholds of $44,701 and $89,401, and is adjusted accordingly in later years.
Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) are provided by the Government of Canada. Eligibility depends on family income levels. Speak to an Investors Group Consultant about special RDSP rules; any redemption may require repayment of the CDSG and CDSB. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. © Investors Group Inc. 2014 mP1752 (01/2015)
Cameron Rose ConsultantInvestors Group Financial Services Inc.
Tel: (250) 707-3265 [email protected]
102-3500 Carrington rdWest Kelowna BC v4T 3C1
Cameron rose
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