The Registered Disability Savings Plan has been a true game changer. For the first time, many with disabilities can grow wealth while not losing the safety net of their provincial disability benefits.
The Canadian government was quick to recognize the value of a disability-specific savings plan and after launching the RDSP in 2008 has remained diligent in making adjustments to ensure it works. It is, after all, a world’s first. Some of the early improvements include allowing grant and bonds to be carried forward for up to ten years, removing withdrawal restrictions for those with a terminal illness and allowing retirement savings to be transferred tax-free into an RDSP.
At the end of 2011, the government oversaw a broadly inclusive, nation-wide review of the RDSP, to improve it further still. Many, including PLAN, were given open opportunities to influence the government in their decisions. After a busy start to the year, the new changes were finally announced at the end of March. A shortened list is below and all of them reflect the opinions of PLAN families as well as individuals, friends and associate disability organizations all across Canada.*
- For adults without the capacity to open or manage an RDSP—their parents, common-law partner or spouse will now be able to open a plan on their behalf and remain the plan holder for life.
- The current RDSP Ten-Year Rule will adjust to a Proportional Repayment Rule: Instead of all the previous ten years’ worth of grant and bond being paid back following any withdrawal—now every dollar taken from an RDSP triggers only a $3 repayment of any grants or bonds received in the last ten years.
- The annual maximum withdrawal limit will increase to being 10% of the RDSP’s value. Also, to ensure the money is used in their lifetime, all RDSP beneficiaries over 60 must begin withdrawing from the plan at a minimum rate.
- The period an RDSP may remain open after a beneficiary loses their Disability Tax Credit qualification will be extended to 4 years in length, with medical certification.
- Investment income earned in RESPs can be transferred tax-free to the beneficiary’s RDSP.
- There will be streamlining of transfers between Financial Institutions as well as other changes to help avoid administrative delays by RDSP issuers.
The next major RDSP review will be in 2014, however we are also aware that five out of the six last federal budgets included significant mention and adjustments to the RDSP. All of these came following recommendations from PLAN and others—and so we expect to regularly have the opportunity to lend our voices.
We would like to hear from you. What are your feelings on the recent changes? What about previous changes? What has not been addressed but needs to be?
Some of the feedback and suggestions on further changes we have already received include:
- Allow the rollover of an RDSP from one beneficiary to another
- Add physical disabilities to the list of who can be eligible for retirement rollovers
- Guarantee that the Guaranteed Income Supplement will not be affected by RDSP withdrawals
- Increase the RDSP age limit to be in line with RRSPs (71) or at minimum be raised by 2 years to match with the recently increase in OAS eligibility
- Ensure that losing the Disability Tax Credit will never cause an RDSP to collapse or trigger any grant and bond claw-back but instead only disallow new contributions during ineligibility
- Make RDSPs creditor proof
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Joel Crocker
Director of Future Planning
PLAN & Plan Institute
# 260 – 3665 Kingsway
Vancouver, BC, V5R 5W2
604-439-9566
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*Note that all but the first change will start taking place after 2013. The first began as of June 29, 2012 and goes until 2016—a temporary measure meant to encourage provinces and territories to institute a process that allows for the appointment of a trusted person to manage resources on behalf of a disabled individual. For more details on all of these changes, please refer directly to Budget 2012: http://www.budget.gc.ca/2012/home-accueil-eng.html