The innovative registered disability savings plan program, which was designed to help the severely disabled, will finally be offered by all of the Big Five banks as the RDSP approaches its first anniversary.

Launched in December 2008, RDSPs were picked up first by Bank of Montreal; soon thereafter, Royal Bank of Canada and Canadian Imperial Bank of Commerce followed suit. Now, both Bank of Nova Scotia and Toronto-Dominion Bank say they are going to add RDSPs to their product shelves before the end of the year. The Quebec Federation of General Practitioners recently signed an agreement to offer RDSPs on behalf of Desjardins Trust in Quebec, as well.

Designed to assist families in planning for the long-term financial security of relatives with disabilities, RDSPs are still a relative unknown on the savings landscape.

It’s estimated that between 400,000 and 500,000 Canadians are eligible to open RDSPs, but less than 10% of them have actually done so. Although millions of dollars have been contributed so far, it’s generally accepted that providers haven’t done an adequate job of promoting RDSPs in the marketplace.

The RDSP addresses one of the biggest concerns of families and parents of children with disabilities, which is how to provide for the long-term financial future of these children, says Jamie Golombek, managing director of tax and estate planning with CIBC’s private wealth-management division in Toronto.

“The RDSP plays an important role in the context of a financial plan,” he says, “by allowing a parent to save money on a tax-deferred basis, but also to take advantage of generous government grants and bonds where available.

In an RDSP, income generated by plan contributions is not taxed while the funds remain in the plan. Ottawa matches a portion of the contributions, which can be made by the disabled person, family members or others. Total RDSP contributions are capped at $200,000.

Federal participation comes in the form of the Canada disability savings grant and the Canada disability savings bond. When the planholder’s income is less than $77,664, the grant program will contribute up to $3,500 annually on a contribution of $1,500, up until the end of the year the beneficiary turns 49, to a maximum of $70,000.

The bond program will provide $1,000 annually to disabled people whose income is less than $21,816, to a maximum of $20,000 or until the end of the year in which they turn 49.

(If the beneficiary is a minor, eligibility is based on the income of the primary caregivers. Once the beneficiary turns 18, the payment of grants and bonds is based on his or her income or, if he or she is married, on the couple’s combined income.)

RDSPs have a broad appeal to people with disabilities, says David Birkbeck, head of registered-products strategy for RBC: “The government benefits are pretty significant. People are quite surprised when they find out the details. A contribution of as little as $1,500 can get you government money to the tune of $3,500. That’s a compelling benefit.”

In order to qualify for an RDSP, a person has to have a severe and prolonged physical or mental disability that entitles them to qualify for the disability tax credit under Canada Revenue Agency guidelines. Examples include blindness; needing to receive life-sustaining therapy; being restricted in the basic activities of daily life, such as dressing, speaking, feeding and walking; or lacking the mental functions necessary for everyday life. An RDSP beneficiary must also be a Canadian resident and have a social insurance number.

RDSPs provide greater benefits for younger people, but there are still solid reasons for those older than 49 years old to open a plan. Such investors aren’t eligible to receive the grant or bond but can still contribute to an RDSP until the age of 60 to build savings on a tax-free basis.

The RDSP’s beneficiary can receive payments from the plan at any age, and there are no restrictions on how the funds can be used. Upon withdrawal, the growth, grant and bond amounts — but not the original contributions — are taxed in the hands of the beneficiary. But there are complications with respect to the withdrawal of grants and bond amounts.

Beneficiaries have to wait until 10 years after the last grant and bond is received before they can make unpenalized withdrawals from their plans.

@page_break@If amounts from grants and bonds are withdrawn before the waiting period is over, all grant and bond money provided by the government during the past decade will have to be repaid.

“It’s a huge penalty,” says David Sharone, product manager of registered plans for BMO Mutual Funds Inc. “The 10-year rule is in place so people don’t put money in and take it out the next year. That makes sure the money is there down the road. It’s peace of mind for parents.” IE