Many Canadians who either have a disability themselves or have a loved one with a disability are still not taking advantage of the registered disability savings plan — and financial advisors could be doing more to promote this product to their clients.
In fact, only 9% of people eligible to open an RDSP have done so since its introduction in 2008, according to Vancouver-based Planned Lifetime Advocacy Network, an advocacy group for Canadians living with disabilities.
Your clients should be made aware that there is a place for RDSPs in financial planning, says Janet Freedman, president of Toronto-based Finance Matters Ltd., who has been disabled since 2000, when she fell down a flight of steps and broke her neck: “It’s a question of getting out there and looking at what the options are for people with disabilities.”
An RDSP can be opened by or for anyone who qualifies for the federal disability tax credit. The accountholder can contribute a lifetime maximum of $200,000, and contributions can be made to an RDSP until Dec. 31 of the year in which the beneficiary turns 59.
Ottawa also contributes, to a maximum of $70,000. For example, if the beneficiary has a combined family income of less than $83,088 and makes a contribution of $1,500, he or she is eligible for a Canada disability savings grant of $3,500.
As well, lower-income Cana-dians may be eligible for the Canada disability savings bond of $1,000 annually, to a lifetime maximum of $20,000. The grants and bonds both are available until the beneficiary reaches age 49.
Contributions made to an RDSP are not tax-deductible — although any contributions withdrawn will not be included as income.
Withdrawals of government grants or bond amounts, as well as any income earned on investments within the RDSP, however, must be declared as income for tax purposes.
It is those government contributions that make the RDSP a “very generous program,” says Tina Di Vito, head of Toronto-based Bank of Montreal’s BMO Retirement Institute.
One rule to keep in mind about the RDSP is the 10-year wait period, which stipulates that a beneficiary cannot make a withdrawal from the plan for 10 years. If he or she does withdraw any funds in that time, then the government grants and bonds must be repaid.
Like other registered accounts, money held in an RDSP can be invested in various products, such as mutual funds or guaranteed investment certificates.
RDSPs can be opened through various, although not all financial services institutions, including BMO, Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia and, most recently, Mackenzie Financial Corp. (all based in Toronto), as well as Winnipeg-based Investors Group Inc.
The fact that RDSPs must be opened through a specific financial services institution may be a reason why these accounts are not always promoted by advi-sors. Many mutual fund dealers are not set up for the RDSP, says Freedman; thus, there is a concern for advisors who work at such firms that they will lose assets to competing firms.
Furthermore, the age limit for RDSP contributions is also a hurdle, Freedman says, because it means baby boomers with older disabled children cannot take full advantage of the savings vehicle.
As well, many advisors and the public have misconceptions about who the savings plan is really for, she adds. Sometimes, people believe RDSPs are only for individuals whose disabilities make them incapable of handling their own affairs. However, Freedman points out, there are many people with disabilities who can benefit from an RDSP who are perfectly capable of making financial decisions.
Another reason the RDSP hasn’t taken off, says Joel Crocker, a director with PLAN, is that the banks have not done much promotion: “You don’t necessarily see RDSP signs all over a bank [branch], as you do [for] RRSPs.”
Di Vito says BMO provides RDSP-related material to advi-sors for client presentations. T-he bank also advertises its RDSP in magazines and newspapers.
PLAN also provides educational sessions across the country, including teleseminars, and places advertisements on websites such as Google and social media platforms such as Facebook.
To ensure more people take advantage of the RDSP, you need to ask your clients the right questions regarding their or their loved ones’ eligibility to open an RDSP.
Financial services firms are not permitted to find out if a client qualifies for the disability tax credit and, therefore, the RDSP, says Di Vito, without the client informing the advisor of the client’s eligibility.
Discovering this information is sometimes easier said than done, Freedman says, as many advi-sors are hesitant to talk to their clients about this issue. IE