Family opportunities to provide disability pensions

In this blog, you can learn more about how to provide pension income to a loved one with a disability, such as with a Registered Disability Savings Plan.

RDSPs (Registered Disability Savings Plans) came into effect in 2008. In some ways, RDSPs are like RESPs (Registered Educational Savings Plans) in that the government also contributes to these plans.

The total government contribution to an RDSP is a lifetime maximum of $90,000. The formula for government contributions varies with family income but in general the government will contribute $1,000 per year as a bond up to $20,000 and up to $3,500 as a grant (based on personal contributions of $1,500) to a maximum of $70,000. Family members can contribute up to $200,000, so grandparents, for example, can help out if they wish.

There are complex rules to prevent early withdrawals, but should pre-retirement funds be needed, it is often possible to do that – especially when contributions to the RDSP have been made early. On withdrawal, only the government contributions and plan income portion of the pension payment are taxable.

With early funding, a plan can accumulate several thousands of dollars for your loved one for a pension starting at age 60. In most provinces, RDSP plan funds and income do not reduce social assistance – a huge bonus in many cases.

RRSP TRANSFERS

Another tax effective way to provide pension funds for a loved one with a disability is to transfer RRSP balances on death to RDSPs or even RRSPs for a child or grandchild that you have been supporting.  A transfer to a RRSP would likely reduce social assistance, so the RDSP transfer is usually the better way to go if a plan exists.

REGISTERED PENSION PLAN TRANSFERS

It is not common knowledge, but the terms of some pension plans provide for a continued pension entitlement on your death for a child with a disability. This can allow some to maintain financial support from a pension plan for their loved ones after they have died.

The rules for the plans and transfers discussed can feel complicated and stressful but can help ensure you get all the support you need as you move forward. Beyond pension income, always be sure to research what other types of support might be available to you from charitable organizations, social programs and health authorities.

KEEP THE CONVERSATION GOING

Have you looked into creative ways to support a loved one? Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Ed Arbuckle, CPA, FCPA, TEP

Ed Arbuckle FCPA, CPA, TEP writes and speaks regularly about disability and personal finances. He recently authored The Family Guide to Disability and Personal Finances. He can be reached through his website www.thefamilyguide.ca. He is a regular contributor to the MoneySaver magazine.