Slow start for disabled accounts
TheStar.com – Business – Slow start for disabled accounts: Only one bank to offer registered disability savings plans within contribution deadline
December 20, 2008. Beth Marlin, Special to The Star
For people with severe, long-term disabilities, there are only a few more banking days left in 2008 to take advantage of up to $4,500 in first-year grants and bonds under the federal government’s new registered disability savings plan.
Only one chartered bank – the Bank of Montreal – has announced it will open qualified RDSP accounts. But that starts on Monday, barely in time for people to meet the Dec. 31 contribution deadline.
At least one of the other big banks – Scotiabank – said it has not decided whether it will offer RDSP accounts at all; but if it does, they won’t be available until 2009. Other banks say they hope to have the registered accounts on offer in the new year.
The banks say the tight window from introduction of the legislation means many are rushing to launch the accounts, though Kalman Fejes, whose 38-year-old daughter, Ildiko, has Down syndrome, said “the banks) do not feel there is much money in it for them because of the size of the (disabled) population.”
Chartered banks are the primary institutions authorized to offer the registered disability savings accounts, though they would be offered at the banks’ discretion.
Finance Minister Jim Flaherty unveiled the savings accounts in the 2007 federal budget and enabling legislation came into effect Dec. 1 .
But no banks appeared ready to process the necessary paperwork. About 180,000 Canadians are eligible for the RDSP, according to Julie Hahn, a spokesperson for Human Resources and Social Development Canada.
Many, including Fejes, feared they would lose out on expected government grants and bonds if they could not meet the 2008 deadline for their first-year contribution of $1,500
“(Ildiko) would lose the $4,500 in government grants and bonds if the account is not available,” said Fejes.
For now, the only option is the Bank of Montreal’s Investor Centre, where they will not be charged an administration fee, but will only be able to invest in the BMO’s line of mutual funds and guaranteed investment certificates.
The RDSP, which is similar in structure to a registered education savings plan, will allow disabled people to invest a lifetime maximum of $200,000 and receive a lifetime maximum of $70,000 in federal government grants and $20,000 in income-tested government bonds. Earnings on the account are tax deferred until withdrawal.
Individuals with incomes less than $37,000 will automatically qualify for a $1,000 government bond if they open an RDSP account, even if they do not make any contribution.
There is no limit on annual contributions, but government grants and bonds are capped yearly at $4,500.
For each dollar of the first $500 in contributions, the government matches with $3, then $2 for the next $2,000.
For individuals with family income exceeding $75,769, Ottawa will match each dollar to a maximum of $1,000.
Ontario announced on Nov. 30 that RDSP assets and withdrawals would not affect individuals’ provincial disability benefits or supports.
British Columbia, Saskatchewan and Newfoundland have also confirmed that they will exempt RDSP assets and withdrawals, while Quebec will partly exempt the RDSP in calculating a disabled individual’s eligible benefits.
Contributions are not limited to the individuals or parents.
However, a drawback the government could reconsider when it reviews the plan after three years is that individuals may not withdraw any funds until 10 years after their last contribution.