Do you know any people under the age of 50 with Type 1 diabetes? Maybe someone you live or work with? Maybe your friend or neighbour? If you do know someone who fits this description, you NEED to read this and pass it on to them.
When I first started in the industry back in 1995, I remember Registered Education Savings Plans (RESPs) were a terrible deal. I regularly counselled against their use, favouring informal in-trust for (ITF) accounts instead, but then the Canadian government got their act together and added some enhancements that made RESPs a better option. Over the next decade the government added tweaks here and there, ultimately making RESPs better and better until they became one of the most complicated, but also one of the most advantageous, savings vehicles out there today.
In contrast to the roll out of RESPs, Registered Disability Savings Plans (RDSPs) were an incredibly generous program right out of the gate – not perfect, but very, very good. RDSPs are also an exceedingly complicated type of plan, but amazingly beneficial to eligible individuals. And just like RESPs, the government has made small enhancements every year or two to make them better and better. Earlier this year, they did it again.
Disability Tax Credit (DTC) eligibility is the gateway to opening an RDSP. The latest amendment to the DTC criteria expands the eligibility even more for individuals with Type 1 diabetes. If someone has been diagnosed with Type 1 diabetes, they are now eligible for the DTC without a medical note to prove they spend 14 hours per week administering insulin.1
Being approved for the DTC is a big deal as it does three major things for those eligible individuals:
1. They get a non-refundable tax credit with an annual value of $1,330.50 for 2022.
2. They may be eligible for other tax-related programs and benefits including the Child Disability Benefit.
3. They are eligible for an RDSP (and all the benefits associated with them), which includes up to $90,000 in free grants and bonds.
In the past I’ve written about how great RDSPs are, but here’s a very quick overview. Eligible individuals (or their friends and family) may put up to $200,000 into an RDSP account. This account is intended to be treated like a Registered Retirement Savings Plan — typically not for immediate funds but meant for later use, usually in their senior years.
These plans come with two major benefits:
Free money: The first set of major benefits comes in the form of government bonds and grants. Bond and grant amounts are based on a variety of factors but can amount to as much as $90,000 in government additions. Bonds can be up to $1,000 annually (with a lifetime maximum of $20,000), are based on past income, and can be retroactive. Matching grants can be up to $3,500 annually (with a lifetime maximum of $70,000). The matching between your contributions and the government’s can be 1:1, 2:1, or 3:1, dependent on your income as well as the amount contributed. It’s all very complicated but trust me – it’s awesome. Almost to the point of being too good to be true.
Preferential treatment: There’s another major benefit that’s often overlooked: while the grant, bonds, and growth are taxable when withdrawn, the income from them is not counted against any means-tested programs – at least not here in BC. This varies a bit from province to province, but all provinces and territories in Canada treat RDSP income preferentially in one way or another.
An RDSP in its most basic terms is meant to create an income for a person with a disability starting at age 60. It’s designed to be contributed to over a 20-year period (at least), then held on to for 10 years, and only then withdrawn bit by bit. If that long-term plan doesn’t work for you for one reason or another, don’t despair. This is just how RDSPs are used best, but it’s not the only way to use them. If you are eligible for the DTC and under the age of 50, then don’t delay. Every year of delay could cost you thousands of dollars in potential free money.
I keep hearing that many people eligible for RDSPs still haven’t opened one. Now that the list of eligibility has expanded, it’s a good bet that there will be many more people that should open one. That’s even more people you can pass this information on to.
If you know anyone under the age of 50 with a disability (and now you can include those with Type 1 diabetes), ask them if they have opened an RDSP yet. If they haven’t, encourage them to do so. You could be helping them pick up $90,000 in free money.
“Truly I say to you, inasmuch as you did it to one of the least of these my brothers, you did it to me.”
Sources: 1Disability-Related Information 2021 – https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4064/disability-related-information.html#nwmsrs
Arnold Machel, CFP® lives, works, and worships in the White Rock/South Surrey area. He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services. Questions and comments can be directed to him at firstname.lastname@example.org or through his website at www.visionvest.ca. Please note that all comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary are those of Arnold Machel and may not necessarily reflect those of IPC Investment Corporation. While every attempt is made to ensure accuracy, facts and figures are not guaranteed.
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