This is Part 2 in our 3-part series on RDSP accounts or Registered Disability Savings Plans.
Today we are talking about working with RDSPs.
RDSPs are an effective way to save for your child’s financial future, or for your own if you are age of majority.
RDSPs can be started if you are eligible for the disability tax credit.
Contributions can be made to an RDSP up to a lifetime maximum of $200,000. Grants can also be earned in an RDSP – the government will contribute up to $70,000. Bonds can be paid into an RDSP from the government as well and bonds can be paid up to $20,000. Bonds are based on income – family income or your personal individual income; and it is a lower income threshold than grant contributions. You can consult the current legislation for the amount of income on an annual basis. Grants will be paid to an RDSP based on contributions and can be paid up to 300% of any contribution that has been made.
A contribution can attract up to $3,500 of grant money with a $1,500 contribution if family income is under, currently, about $100,000. And that can be collected back on years that grants may not have been applied for or one was eligible, but did not open an RDSP in time. You can go back up to 10 years to collect unearned but eligible grants in an RDSP.
RDSP withdrawals are designed such that an RDSP is kept open for the long-term financial security of the beneficiary of the RDSP. If withdrawals are made within 10 years of a grant or bond being paid into the account, there can be a proportionate claw back on withdrawals, and grants and bonds may need to be paid back to the government to some extent. Therefore, waiting for 10 years before withdrawals are made, is usually a really effective way to maintain the integrity of the account.
When withdrawals are made, you can withdraw in two formats. One is a Disability Assistance Payment or a DAP, and that’s a one-time lump sum withdrawal that might be made. An LDAP or a Lifetime Disability Assistance Payment is made or has to be started by the time the beneficiary is age 60. And it’s an annual recurring amount that needs to be withdrawn on a regular basis. There are some minimum and maximum requirements on an LDAP withdrawal, and it is dependent on a number of factors within the RDSP account.
You may be wondering what the difference is between a holder of an RDSP and the beneficiary. The holder of the RDSP is the individual who makes the decisions on the account. The beneficiary is the one who receives the benefit of the RDSP account. Many times the holder and the beneficiary are the same individual, but that is not always the case. For example, if the beneficiary is a minor, oftentimes the parents or guardian will be the holder of the RDSP account. And grants and bonds will be based on any income of the beneficiary’s family or parents in that circumstance. When the beneficiary and holder are the same individual, the beneficiary has to be at least 18 years of age and has to have capacity to make decisions on their own.
Parents can maintain the holder status on their child’s RDSP account, even if the child is 18 years of age or older, if the parent is the legal guardian of the child still.
RDSPs can be some of the most important dollars that families save for their loved ones, but they are also very complex. If you have any further questions, please reach out to us and we’re happy to discuss.
We are asking our retired clients to share their experiences as inspiration for those of you approaching retirement. Here is Joanne’s experience of finding new activities in retirement.
“When I was looking at setting a date for retirement, I needed to sort out a transition plan. I was moving from working full time to not working. I needed to make sure things were in order so that I could successfully do this.
I knew that my finances were in order because of the input from Kelley and Stephen and I knew my legal papers had all been completed so those items were done, but I needed to look at the activities that I could do.
“I needed to look at the activities that I could do”
I had lots of things that I could do in terms of crafts at home that would keep me busy forever. I could travel and I could golf, but those are time limited. So I needed to look at other things that would keep me busy and would get me out to meet new people.
“What I decided to do is to start running.”
What I decided to do is to start running. I took a learn to run class in the summer prior to my retirement. I persevered through that, meeting some new people, had a lot of support from my family and my coworkers at the time to keep on running. I completed that course, did the race, and another one at the end of the year.
One of the participants from the learn to run class got a hold of me the following winter and asked if I would join her in a 5k clinic. I did that and I’ve since taken the 5k, the 10k, and done a number of races.
“I’ve since taken the 5k, the 10k, and done a number of races.”
I’ve met a lot of people running and have actually developed a small group of people who run like I do, who are slower paced, who are out there just to keep active.
It’s not easy, it’s not something I’ll do by myself. I take my dog with me when we do run. And we set our own pace and our own distances now just to keep going. It’s interesting, it’s nice to have met a very different group of people.
I’m very glad that I did it and I hope to carry on doing my running. It’s one of those many things that keep me active. It’s got me back into swimming and back on the bike, and keeps me very active and happy in my retirement.”
“…and keeps me very active and happy in my retirement.”
The following is general tax filing information that may or may not apply to you.
Our clients will be receiving a tax package from their Portfolio Management team onlyif you have a Non-Registered account and there was activity in your Non-Registered account(s) in 2022. If you do not have a Non-Registered account you should not expect to receive this.
The tax package includes a Statement of Annual Management Fees, Foreign Asset Report, and a Realized Gain & Loss Report for Non-Registered accounts if there was any activity in 2022. You will need the Gain & Loss Report to pair with your T5008 tax slip that you will receive from your Custodian. The Gain & Loss Report provides the book value of activity in the account, while the T5008 provides the proceeds of disposition. Please provide both documents to your tax preparer. If there was no activity in your Non-Registered account or you do not have a Non-Registered account, you will not receive these forms.
Special Reporting: Our Portfolio Managers may invest in certain holdings which have a different type of reporting. The distributions for Non-Registered accounts that contain these holdings are reported on CRA Form T3 and/or T5013. These forms are expected to be sent out near the end of March. Your Portfolio Manager advises you to wait until after March to file your return to ensure you receive all necessary slips.
Note that if you have made an RRSP or Spousal RRSP contribution in the first 60 days of 2023, the deadline for mailing these slips is the end of March.
Please ensure you have received all necessary slips before filing your 2022 tax return. If you are signed up for online access with NBIN and have your preferences set to electronic delivery, your tax slips are available online only. Therefore, you will need to login to your account to check for tax slips as there will not be a hard copy mailed.
If you or someone you know is caring for a senior you may find this list helpful. The National Institute of Aging (NIA) has created a list of current programs and services that seniors can benefit from. You can view the list here.
The list is organized by province and territory, along with nationwide resources under 4 key categories:
1. Promoting Preventive Health and Better Chronic Disease Management
2. Strengthening Home and Community-Based Care and Supports for Unpaid Caregivers
3. Developing More Accessible and Safer Living Environments
4. Improving Social Connections to Reduce Loneliness and Social Isolation
As we approach the end of the year, some clients may have questions about capital gains and losses that have occurred in their portfolio.
Watch this video to understand what capital gains and losses are and how they may impact your taxes.
Today we are discussing capital gains and losses.
Capital gains and losses are in reference to a taxable account and today we are discussing them as they relate to stocks, although capital property is another variety of property that they can apply to.
Capital gains and losses occur when you dispose of a stock at higher or lower than your adjusted cost base (ACB).
Your adjusted cost base (ACB) is the total price that you have paid for your stock. In addition, you can add some of the cost that you had to acquire the stock, such as commissions, to the adjusted cost base.
A capital gain occurs when you sell your stock for more than your adjusted cost base. A capital loss occurs when you sell your stock for less than the adjusted cost base.
Let’s say you paid $100 for your stock and you sell it for $150. You would have a capital gain of $50 – the difference between your sale price, and in this example, your adjusted cost base.
Halfof the $50 is taxable, so $25 would be taxable for you in the year that you dispose of the security.
Conversely a capital loss would happen if you sold your security for $75.
You’ve incurred a loss of $25 and halfof that – $12.50,can be used to reduce any capital gains that you’ve experienced in the year that you’ve sold your security, three years prior, or essentially indefinitely going forward.
Capital gains and losses are in reference to a taxable account (Non-Registered Accounts). They do not apply to Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs).
Capital gains and losses can be used for tax planning, so please reach out to our team if you have a tax planning situation that you need assistance with. Learn more about the tax planning services we provide here. If you have any further questions about capital gains and losses, contact us here.