Registered Disability Savings Plan (RDSP) – a financial building block for Canadians with disabilities

June 2012

RDSP, insurance     

What is a Registered Disability Savings Plan?

If you have a disabled child, you are likely concerned with saving for their financial stability in the future.  A Registered Disability Savings Plan (RDSP) is designed to help contribute to the long term financial security for a person with a disability. As an efficient savings vehicle, the RDSP complements other savings plans and take advantage of the contribution benefit provided by the Government without jeopardizing other income-tested benefits. Parents and others can contribute up to $200,000 to a RDSP that will grow on a tax-free basis for the benefit of a person with a severe disability and prolonged physical or mental impairments.

Who is eligible to have a RDSP?

The beneficiary of an RDSP must be: 

  • eligible for the Disability Tax Credit

  • under the age of 60

  • a Canadian Resident and have a valid social insurance number 

Only one RDSP can be opened for a beneficiary. Generally, the plan must be opened by the disabled person, unless she is not legally competent to enter a contract. In that case, a parent or the person legally authorized to act on the disabled person’s behalf can be the holder of the plan.

How can an RDSP help?

Contributions, up to a lifetime maximum of $200,000, can be made until the end of the year in which the beneficiary turns age 59 and have the potential to grow more quickly than if they were invested in taxable investments outside of a RDSP. While contributions are not tax deductible, all income and growth within the RDSP is tax free until withdrawn.

In addition, the Federal Government provides assistance through two financial programs which can really help savings grow faster. These supplemental contributions to the plan, based on the disabled person’s family income, are in the form of grants and bonds which are available until the end of the year in which beneficiary turns 49.

Canada Disability Savings Grant (CDSG)
Up to 300% of the annual contributions to the RDSP can be matched through the CDSG program up to an annual maximum of $3,500. The maximum lifetime CDSG is $70,000 per beneficiary.

Canada Disability Savings Bond (CDSB)
For families with net income under $41,544 (in 2011), the CDSB program provides an annual contribution of up to $1,000 even if no contributions are made to the RDSP by the plan holder. The lifetime bond limit is $20,000.

Where a beneficiary is over the age of 18, family income is based on the income of the beneficiary and their spouse and, in the case of a minor beneficiary, it is based on their parent’s income.

Who can contribute?

Anyone can contribute to a RDSP. However, a contributor must have the written permission of the plan holder.

How can funds be withdrawn from the plan?

Since the RDSP is intended to support long term financial needs, withdrawals called Lifetime Disability Assistance Payments (LDAPs) are structured to provide annual payments to the beneficiary from age 60 until death.  Additional lump sum withdrawals are allowed at any time, however grants and bonds paid into the plan within the previous 10 years may need to be repaid. 

Since all payments are made up of a combination of capital invested, Government contributions and investment growth, a portion of each payment will be taxable on withdrawal in the beneficiary’s hands.

RDSPs are a fundamental building block for saving for the financial security of a disabled person’s lifetime. With the addition of Government grants and bonds and tax deferred growth within the plan, your annual savings will multiply in a tax effective manner.

If you would like more information or to set up a Disability Savings Plan, please contact your Investment Advisor.

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