Registered Disability Savings Plan

Investment & Savings

Registered Disability Savings Plan (RDSP)

Registerd Disability Savings plan (RDSP) is a long-term savings plan designed to help individuals with disabilities and their families save for the future. It is a unique savings vehicle that offers various financial incentives to encourage long-term savings and provide financial security for people with disabilities.

Key Features of RDSPs:

A RDSP is a tax-deferred securities account for individuals who are approved for the disability tax credit. Low-income families are eligible for up to $90,000 in government grants over their lifetime. 

Low-income families may be eligible for the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB). The CDSG is a contribution matching program and the CDSB is an annual contribution from the government.  

The CDSG can grant up to $3,500 annually and the CDSB $1,000 annually. The lifetime grant limit of the CDSG is $70,000 and the CDSB $20,000. You must be 49 years or younger to receive both grants. Ten years’ worth of grants can be carried forward, if you were granted eligible during those years, at an annual maximum of $10,500 for the CDSG and $11,000 for the CDSB. 

The CDSG and CDSB grant amount depends on the beneficiary’s adjusted family net income for that year. If the beneficiary is above the age of 19 in the fiscal year, his/her parents will not be included in the adjusted family net income calculation.

There are 3 different types of withdrawals from an RDSP.  

  1. Lifetime Disability Assistance Payment (LDAP): Periodic, must begin by age 60, withdrawal amount determined on account’s market value and the beneficiary’s age at the time of withdrawal 
  2. Lump Sum Payment (DAP): A one-time withdrawal, available if the beneficiary is above 27, not available if the account value would be less than the government grants contributed to the account over the last 10 years. 
  3. Specified Payments: Up to $10,000 per year are available to beneficiaries with a life expectancy of 5 years or less. A medical practitioner must attest to the prognosis.  

Key Features: 

  • Tax-Deferred: Contributions are not taxed until funds are withdrawn. When withdrawn, gains are added to the beneficiary’s taxable income. 
  • Eligibility: To open an RDSP, the individual must be eligible for the Disability Tax Credit (DTC), a non-refundable tax credit provided to individuals with disabilities who have impairments that affect their daily living activities.
  • Contributions: Contributions to an RDSP can be made by the beneficiary, their family members, or anyone else who wishes to contribute. There is no annual limit on contributions, but there is a lifetime limit of $200,000 per beneficiary. Contributions can be made until the beneficiary turns 59.
  • Government Grants: The Canadian government provides generous grants to help boost savings in RDSPs. The Canada Disability Savings Grant (CDSG) matches contributions made to the RDSP, with the amount depending on the beneficiary’s family income and contribution level. The government can provide up to $3,500 in CDSG annually, up to a lifetime maximum of $70,000.
  • Government Bonds: For individuals with lower income or who may not be able to contribute, the Canadian government offers the Canada Disability Savings Bond (CDSB). It provides annual payments of up to $1,000, with a lifetime maximum of $20,000, regardless of whether contributions are made to the RDSP.
  • Withdrawals: Withdrawals from an RDSP are called Disability Assistance Payments (DAPs). DAPs consist of both the contributions and investment income/gains and are generally taxable in the hands of the beneficiary, usually at a lower tax rate. However, the government grants and bonds received are included as taxable income. 
  • Savings Grants and Bonds Repayment: If any contributions made to an RDSP are withdrawn within ten years of receiving a government grant or bond, a portion or all of the grants and bonds received in the previous ten years may have to be repaid.  For every $1 withdrawn, the government will take back $3 paid into the plan in the previous 10 years.

Additional Feature:

  • Deceased Parent Feature: If a RDSP beneficiary’s parent passes away, and the RDSP beneficiary is financially dependent on the parent, up to $200,000 from the parent’s RRSP may be transferred to a RDSP, continuing the tax-deferral. These funds are not eligible for a grant.
  • DTC Non-Eligibility: If the beneficiary is no longer eligible for the DTC, they cannot contribute to their account until they are re-eligible.
  • Deceased Beneficiary: The RDSP must be closed in the year of the beneficiary’s death.

RDSPs are intended to provide long-term financial security for individuals with disabilities. They can help cover disability-related expenses, improve quality of life, and provide peace of mind for the future. It’s important to consult with a financial advisor or tax professional to fully understand the details and implications of RDSPs based on your specific circumstance

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