Understanding RDSP Accounts: Working with RDSP’s

Understanding RDSP Accounts: Working with RDSP’s

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 And it’s an annual recurring amount that needs to be withdrawn on a regular basis.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.

Important 2022 Tax Filing Information

Important 2022 Tax Filing Information

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 only if 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.

Please refer to the target tax slip mailing schedules from National Bank Independent Network (NBIN) and Credential Securities.

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 have any questions, please contact our office.

2022 RRSP & 2023 TFSA CONTRIBUTIONS

2022 RRSP & 2023 TFSA CONTRIBUTIONS

This will serve as a friendly reminder of the contribution limits and cut-off dates for RRSP and TFSA contributions if you are planning to make one this year and have not already done so.

RRSP Contributions:

The cut-off date for your RRSP contributions to count toward reducing your income for 2022 is Wednesday, March 1, 2023. The contribution limit for the 2022 taxation year was 18% of your taxable income up to a maximum of $29,210, whichever is less. The contribution limit for the 2023 taxation year is a maximum of $30,780. If you have unused contribution room from previous years, you may utilize this room as well.

TFSA Contributions:

If you would like to contribute to a TFSA for 2023 the limit is $6,500 for the year, unless you have not maxed out your contributions. The maximum one could have deposited into their TFSA account since 2009 is $88,000 as of 2023.

Our clients can make contributions through one of the following methods:

Transfer from Non-Registered Account: If you have a Non-Registered account set-up with enough funds in it, you can simply send us an e-mail indicating the amount you would like transferred from this account to your RRSP or TFSA.

Online Banking Transfer (Bill Payment): Add your Custodian (“Credential Securities” or “National Bank Independent Network” / “NBIN” – note it may show up as either, depending on your bank) as a “Payee” through your online banking and enter your account number as the bill account number. If you need assistance finding your account number or are unsure who your Custodian is, please contact our office. If you choose this method, please also notify us with the amount you are contributing, so we can have your Portfolio Manager watch for it.

EFT from your Bank: You will just need to sign an EFT form if you have not already done so, which allows your Custodian (Credential or NBIN) to take the money directly out of your account with your consent. Once you have signed the form, we will require an email from you indicating the one-time amount you are authorizing them to withdraw from your bank account and which account (RRSP or TFSA) you would like it deposited to.

If you have any questions or would like to book a video or phone appointment to review your accounts, please contact our office at 780-490-4200.

QUESTIONS FROM CLIENTS: WHAT IS A RIF & HOW DOES IT WORK?

QUESTIONS FROM CLIENTS: WHAT IS A RIF & HOW DOES IT WORK?

Today we’re talking about another common question from clients – what is a RIF and how does it work?

A RIF is simply a conversion from your Registered Retirement Savings Plan (RRSP) to a Registered Retirement Income Fund. So the income version of the tax sheltering that you receive from a registered account. A RIF is set up so you can continue to enjoy growth on your assets without paying tax as the assets grow.

Of course, you are going to be taxed when you take money out of your RIF. So how does that work?

You have to convert your RRSP to a RIF at age 71, and you must begin to draw income out of the RIF at age 72.

You can convert to a RIF prior to that if you choose to. You can also convert partially to a RIF from your RRSP account if you choose to, which can be a great way for you to use the pension tax credit for example.

So how much do you take out of a RIF when it’s time to convert? You have to take out a designated amount that’s specified by the Government as a percentage of your assets. Your assets will be calculated on December 31 of the previous calendar year and a percentage applied to it based on what CRA determines. This will give the minimum amount that you have to take out of your RIF once it’s in RIF format. You can always take more out of your RIF if you choose.

When you take money out of your RIF, it is taxed as ordinary income. The RIF minimum will not be taxed immediately, but you need to consider it in your tax planning for the year. Anything over and above RIF minimum will incur a withholding tax, and that portion will be taxed as you go. You can ask to have your RIF minimum taxed as you go as well, but it’s not automatic.

Another common question we get asked is whether you are taxed twice on a RIF? And the answer to that is absolutely not.

When you make a contribution to your RRSP in your working years, typically you are at a much higher income than you are in your retirement years. Often this means you get a great tax benefit throughout your working career to make those RRSP contributions. Following that up, you pay a much lower rate of tax when you draw that money out from your RIF.

So are you taxed on your RIF? Absolutely, but you’re certainly not double-taxed. And typically, you are seeing a significant benefit in terms of tax planning from your working career to your retirement years.

If you have any questions about how your RIF fits into your financial plan, please contact your advisor or give us a call.

Important 2022 Tax Filing Information

PROGRAMS AND SERVICES FOR SENIORS

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