Me and My Money

Don’t miss this deadline for free government money...

Posted November 25, 2011
Originally Published November 29, 2010

If you’re looking for free money -- and who isn’t -- there’s an important deadline right around the corner for contributions to Registered Education Savings Plans (RESPs) and Registered Disability Savings Plans (RDSPs).

Wait a minute. That’s not quite true. The year end deadline no longer holds as RESPs and, just recently, RDSPs allow you to catch up on missed contributions. Not only that but you can also catch up on the government grants that go along with those two plans.

There is a deadline but it is psychological and, often, financial in nature. If you let December 31 pass without making a contribution to an RESP or RDSP it is much tougher to discipline yourself to catch up next year. Not only that but you may not have the disposable income to do so.

The RDSP is the most welcome government benefit to come along in decades. But 90 per cent of eligible Canadians have yet to apply. That’s some serious free money going to waste. The CDSG provides as much as $3500 in grants plus a $1,000 bond, depending on income.

My daughter is deaf and her RDSP fund will go a long way to helping her pay for special services she may need in the future. As a passionate chef-to-be, I doubt she will ever be out of work. However, the world of employment isn’t always welcoming to those with disabilities and, if she needs the cushion, it will be there.

Here is an RDSP primer:

Under the the Canadian Disability Savings Grant, if your annual net income is less than $81,941, you will receive $3 for every $1 contributed on the first $500, plus $2 for every $1 contributed on the next $1,000, up to a maximum of $3,500 annually.

If annual net income is over $81,941, you will receive $1 for every $1 contributed up to $1,000.

The lifetime maximum grant is $70,000 or until December 31st of the year the person turns 49.

Under current rules the RDSP has to be in place for 10 years before withdrawals can be made without paying back the grant and bond portions. RDSP withdrawals will be taxed as income.

Though the holding period and the formula for RDSP withdrawals are, in my opinion, unnecessarily restrictive there are signs that the government may be willing to ease the rules or at least include options for hardship cases.

Here’s the best part about opening an RDSP. If your annual net income is $23,855 or less, the Canada Disability Savings Bond will provide $1,000 per year without any contribution whatsoever up to a maximum of $20,000, or until December 31st of the year the person turns 49. If net income is between $23,855 and $40,970, you will receive a portion of the $1,000. Over $40,970 there is no bond.
(For more information www.cra-arc.gc.ca, go to Topics then Disability Issues.)

If you haven’t applied for this free money I suggest you get cracking to be eligible for this year’s grants and bond. From personal experience I can tell you that signing up for the RDSP can be quite time consuming, though the banks have streamlined the process considerably since the program began in 2008.

In order to open an RDSP you need to have the Disability Tax Credit approval in hand. Unfortunately, the government definition of disability is quite restrictive and, as many readers have told me, even those with multiple disabilities are denied if they don’t fall into the current, very black and white definitions.

Hopefully, the tax credit eligibility will become more inclusive in the future.


RESPs

On the first $500 per child you contribute to an RESP, the Canada Education Savings Grant will give you up to $200 if your net family income is $40,970 or less. You’ll get
up to $150, if your net family income is between $40,970 and $81,941, or up to $100, if your net family income is more than $81,941.

When you save more than $500 annually, the Canada Education Savings Grant could add up to $400 on the next $2,000 or 20 cents on every dollar. On a $2500 annual contribution, the maximum grant is $600, depending on income. The maximum Canada Education Savings Grant over the life of the plan is $7200.

All children up to age 17 are eligible, as long as they are Canadian residents and an RESP has been opened for them. Special rules apply if your child is between the ages of 15 and 17.

If you have a low income with nary a dime to spare you can kickstart your child’s education fund without contributing anything, thanks to the Canada Learning Bond. The bond amounts to $500 in the first year and $100 each year up to age 15. (An extra $25 will be paid with the first $500 bond to help cover the cost of opening an RESP.)

That’s up to $2,000 for your child’s education. To be eligible for the Canada Learning Bond, your child must be born after December 31, 2003, and you must receive the National Child Benefit Supplement as part of the Canada Child Tax Benefit, commonly known as “family allowance” or “baby bonus.”

For more info www.canlearn.com search RESP.

Of course, the holidays are the worst time to try and come up with extra cash for RDSP or RESP contributions. So, why not tap the relatives? Most children, especially the young ones, receive so many gifts they can barely remember what they got.

Speaking as a parent I can’t think of a better Christmas present for my daughter than a contribution to her RDSP.

And putting on the grandparent hat, my toddler grandson won’t miss that extra present under the tree but will, one day, appreciate having a RESP nest egg when he’s embarking on his post-grad degree or diploma program.

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