Susan is a lovely 2 year old who was diagnosed with Autism and is likely to need full time care for the rest her life. Susan’s parents both work and have a combined net income of $80,000 per year. They have provided well for her, but they don’t have any spare funds available to save for her financial future.
Susan’s grandparents want to step up and contribute to her future. They decide to put into their wills that Susan will receive the majority of their estate. They were quite disappointed to learn that putting money directly into the hands of Susan will trigger a clawback from the government, stopping all her disability payments until her assets are reduced to $5,000. Effectively Susan’s grandparents would be giving their estate to the government.
Susan’s parents suggest a better way. They will open an RDSP and the grandparents will contribute $1,500 per year for 20 years for a total contribution of $30,000.
Question: How much will Susan’s account be worth when she turns 50?
Choose:
- $255,453
- $644,478 or
- $844,927?
Let’s do the math using the online RDSP Calculator
- Susan’s will make three years worth of contributions in the first year. The government has already stipulated that Susan’s disability started at birth.
- Each year from Susan’s birth, a RDSP contribution of $1,500 will attract a $3,500 grant from the government. That’s over $15,000 in her account in the first year of the plan.
- When Susan becomes an adult, the government grants and bonds are calculated using her personal income and not that of her parents. She now becomes eligible for the $1,000 annual bond with no matching contribution.
- Susan’s parents open an account with TD Waterhouse giving them much greater investment options than other institutions. They decide to invest using the Canadian Couch Potato’s portfolio and plan on a conservative rate of return of 5%.
So what will be the account balance when Susan turns 50?
Answer: $844,927
My question to you is: Why would a disabled child’s grandparents hand over their life savings to the government when they could have this kind of impact on their granddaughter’s future?
Autism Funding in BC 
“Each year from Susan’s birth, a RDSP contribution of $1,500 will attract a $3,500 grant from the government. That’s over $15,000 in her account in the first year of the plan.” Huh? Don’t you mean that’s “over $15,000 in the first three years of the plan”?
The year that the plan is opened is not the same as the year that the child qualifies for the Disability Tax Credit. After opening the RDSP, the government will add a maximum of $10,500 in grants per calendar year. The grants can be back dated to the beginning of the disability which is birth. To maximize the first year, the family makes a contribution of $4,500 in the first year which attracts the government grant of $10,500.