The Single Best Investment for your Child

This is the first in a series of posts about the Registered Disability Savings Plan (RDSP).

If you are going to do only one thing for your child’s financial future, setting up an RDSP is it. This easy to setup account invests free government money for his/her future and protects future benefits in a way no other investment can.

Surprisingly the uptake on RDSP is abysmal. Only 14% of those eligible have an RDSP. Why do parents not take the first step to assure the financial future for their child?

I have heard every possible excuse for not starting up an RDSP:

  • It’s too hard (Wrong! The paperwork may be lengthy, but grab a coffee and let the financial institution fill it out while you chill. Call ahead and book an appointment with an RDSP specialist)
  • It curtails future benefits that my child might receive (Wrong! The BC government has exempted disbursements from the RDSP from clawing back future benefits)
  • The investment options are very limited (Partly true, which is why I recommend TD Waterhouse for your account)
  • It doesn’t amount to that much money (Wrong! Properly structured the account can amount to well over a million dollars as your child approaches middle age)
  • It doesn’t provide the funding I need now (True, but why should that stop you from planning your child’s financial future?)

The Basics

The RDSP is similar to a Registered Education Savings Plan (RESP). A person contributes money to this registered plan, the government adds “free money” and it all accumulates tax free. There is something for everyone here. Families with modest incomes will qualify for a savings bond with no matching contributions. Families with higher incomes will enjoy matching grants within certain limits.

BC has exempted RDSP payouts from clawing back Persons with Disabilities (PWD) benefits further increasing the desirability of this plan.

There should be no excuse not to have a plan set up. Depending on family income the government will add funds through one or both of the following programs:

Canada Disability Savings Grant

When annual family net income is equal to or less than $87,123 the grant will contribute:

  •    $3 for every $1 contributed on the first $500.
  •    $2 for every $1 contributed on the next $1,000.

When annual net income is over $87,123, the grant will contribute:

  •    $1 for every $1 contributed up to $1,000.

The Grant can be received up to a maximum of $70,000 over a person’s lifetime and only until the beneficiary turns 50 years of age.

Canada Disability Savings Bond

When annual net income is $25,584 or less, the Canada Disability Savings Bond will provide $1,000 per year without any personal contribution. The Bond is pro-rated if your income is between $25,584 and $43,953.

The Bond was created to make the RDSP accessible to persons with disabilities whose family and friends are not in a position to make contributions. The Bond can be received up to a maximum of $20,000 over a person’s lifetime and only until the beneficiary turns 50 years of age.

Would you like a $150 gift to kickstart your RDSP?

If you are in receipt of provincial income assistance, you may be eligible for a one time gift of $150. Refer to Endowment 150 for more information.

Which Financial Institution should I use?

TD Waterhouse. If you want to know why, see my previous post RDSP – Change of Financial Institution

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