RDSPs (Registered Disability Savings Plans) can be a valuable tool in the advisor’s toolbox. They are not well understood, and not used enough. There are some complexities and limitations. However, there is no reason the RDSP should not be used for many persons with disabilities.

We’ll start this multi-part series with a look at the purpose of the RDSP. As with so many other things, starting with ‘why’ is helpful.

The RDSP is a retirement account. One more time, for the folks in the back: The RDSP is a retirement account.

This can be frustrating for the parents of a child with a disability, where financial pressures are often more immediate. We’ll look at other circumstances than just parents saving for their kids, but that’s the most common application.

The intent can be summarized as follows:

·        Parents contribute modest amounts to an RDSP for a couple decades.

·        The government provides generous grants and bonds to enhance the plan.

·        The funds in the plan grow tax-deferred for several decades.

·        Starting at age 60, the person with the disability starts to draw funds, similar to a RRIF.

The RDSP is intended to allow accumulation without interfering with provincial disability supports. For an adult with a disability, these monthly payments can be quite valuable.

A rough summary of these programs and their limitations:

·        They generally provide a very modest monthly income, in the range of $1,000 - $1,500/mo.

·        They are usually paid from 18-65. They are intended to stop at the point were OAS starts, generally.

·        They are only paid if the recipient has no meaningful income (cut-offs vary from about $20,000/a income to about $40,000/a income) and no meaningful financial assets (cut-offs vary from a few thousand dollars of assets to $140,000).

We are going to see a recurring theme of complexity here, and the income and asset thresholds for these provincial disability supports programs have more than their share of complexity.

The RDSP then becomes a valuable planning tool for parents who want to make sure a child with a disability will have some financial freedom in retirement. In fact, with a relatively low level of contributions, the RDSP can grow into a substantial pool of retirement assets, as we’ll see in the next instalment of this series.