What should I watch out for when I invest in an RDSP?—AboutMoney.ca

Posted by: admin  |  March 26th, 2012  |  Posted in: * Canada - National, Investing, Planning, RDSP

Often when you save and invest money, there may be some risk that you’ll lose money. When you invest in a Registered Disability Savings Plan (RDSPs), you may also face certain risks. The three most common risks are:

  1. Investment risk.
    RDSP investments can include savings accounts, GICs, stocks and mutual funds. With any of these choices, there is the risk that you may not make as much as you need or hope to make. For example, you may get poor returns, or lose money as a result of bad investment decisions. In most cases, to get a higher return, you have to accept a higher level of risk.
  2. Future risk.
    There is the risk that circumstances may not work out the way you hoped. Most people invest in their RDSPs over many years. Over that time, life can change. Life may change and you may have to cancel your plan or withdraw money early. You may lose money through penalties or other fees. You may even have to return some or all of the government money you received.
  3. Cost risk.
    There is the risk that your investment costs could reduce your returns more than you expected. These risks vary. In some cases, you can reduce the risk simply by choosing different investments.

How do I reduce the risks for my RDSP?

There are ways to reduce the risk when you invest your RDSP savings. For example:

  • Get expert help rather than invest on your own. Find an adviser that you can trust to help you invest your money. Just remember that in many cases, you will pay higher fees to get expert advice.
  • Find out the costs of a plan before you buy: Before you join an RDSP, ask about any fees you will pay. You may be able to find an institution that charges lower or no fees if you shop around.
  • Ask about the costs of any investment before you buy: With some investments, you will pay fees every time you buy and sell. You should think about what you will have left after you pay those costs.

Remember: There are always risks when you invest.
Make sure you understand the risks of any investment before you buy. Don’t invest in any product that you don’t understand.

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If the Beneficiary or Holder of the RDSP is a dual Canadian / US citizen or an ‘accidental American citizen’ (born in Canada to parents with US or dual citizenship or born in the US to Canadian citizens there short-term, like students or travellers) they should seek legal US tax advice. The US considers RDSPs, RESPs, TFSAs “foreign trusts” as they are not yet recognized within the Canada / US Tax Treaty. Thus, these RDSPs are reportable and Canadian Government Bonds and Grants can be taxable to the Holder (if that person is US and other than the Beneficiary). There are specific yearly IRS forms, as well as Foreign Bank Account Reports (FBARs) required for the US when the aggregate amount of all financial accounts for the Holder or the Beneficiary total $10,000 or more. http://www.irs.gov/businesses/international/article/0,,id=185295,00.html
and
http://www.irs.gov/businesses/small/article/0,,id=148849,00.html

Carol
March 31, 2012
5:40 pm
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