I’m a big advocate of financial planning. Often transitions in our lives, such as marriage, divorce and death make us look at our future and the future of our loved ones with a renewed focus. When going through a divorce, often the negotiation is centered around the more commonly considered financial assets – the home, RRSPs and pensions. Financial planning for the children
Financial planning is even more critical if you have a child with disabilities.
If you have a child with a disability
Your separation agreement should address the long-term financial contributions for all of your children but planning for your child with disabilities is crucial.
How? Consider two things:
- Government Incentives and Grants
Government Incentives: The Registered Disability Savings Plan
The Registered Disability Savings Plan (RDSP) is a long-term savings plan to help Canadians with disabilities and their families save for the future. If you have a RDSP, you may also be eligible for grants and bonds to help long-term savings.
- The beneficiary, must be a Canadian resident with a Social Insurance Number (SIN);
- have a long-term disability,
- be eligible for the Disability Tax Credit and be
- under the age of 60 (if you are 59, you must apply before the end of the calendar year in which you turned 59);
- Lifetime family contribution limit of $200,000. In addition, with written permission from the RDSP holder, anyone may contribute to the RDSP.
- The maximum government grant payable is $70,000. The maximum bond payable $20,000
- Shared Custody: The Canada Disability Savings Program (CDSP) system will use the income level that is the most advantageous for the beneficiary to determine the grant entitlements.
- After age 18, the beneficiary will most likely be the RDSP holder and their income will be used to determine grants
- Parents or grandparents of a financially dependent child or grandchild with a disability can arrange for some or all of their retirement savings to be transferred (tax-free) to their Registered Disability Savings Plan (RDSP) when they pass away
If your family income is less than or equal to $95,259 (2019):
- For the first $500 contributed each year to the plan, the Government will deposit $3 for every $1 of your contribution, up to $1,500 a year.
- For the next $1,000, the Government will deposit $2 for every $1 you contribute, up to an additional $2,000 a year
- You may catch up for previous years. The maximum grant payable in any year is $10,500
Depending on your income an annual contribution of $1500 could accumulate $4,500 in grants and bonds. That is a 300% return.
- If your net income is less than $31,000 the Federal Government will put $1000 into your RDSP account;
- If your net income is between $31,120-$47,630, the government will put a portion of $1,000 into your account
- Once your child is 18, then their income is used to determine the grant.
The second thing to consider is time.
Consider the math:
If you start contributing $1500 a year towards your child’s RDSP when they are 10, by the time they are 30, the plan will have received its maximum grant of $70,000 and maximum bond of $20,000. Your investment of $30,000 over 20-year period is worth $120,000.
Now, consider the magic of compounding. Assuming no other contributions are made to the plan and the above contributions and grants are invested in a moderate portfolio earning 6%, by the time the beneficiary is 60 years old, the RDSP will be worth $ 1,267,666
With a little knowledge and planning, the $30,000 invested over 20 years could be worth $1,267,666
Having the assistance if a Financial Divorce Specialist as you navigate through the process can ensure that your goals and needs for your family aren’t overlooked.
For more information, please contact Madhu at [email protected] or visit. www.elixirconsulting.ca