The Registered Disability Savings Plan (RDSP) is a savings plan designed to assist Canadian parents, and individuals save for the long-term financial security of a person eligible for the Disability Tax Credit (DTC).
It aims at helping people living with disabilities who are approved for the DTC save for the future by providing a long-term savings plan. It also offers grants and bonds from the Canadian Government to help with long-term saving goals.
This article will enlighten you on the Registered Disability Savings Plan and everything you need to know, including eligibility criteria, rules, contributions, withdrawals, grants and bonds, and many more.
Read on to find out more.
What is a Registered Disability Savings Plan (RDSP)?
The RDSP is a Canadian savings plan that is intended to help individuals and families save for the long-term financial security of their loved ones who are eligible for the Disability Tax Credit (DTC).
An RDSP is a great plan for families with a loved one living with a disability. It gives them peace of mind knowing that their loved ones will be financially protected if anything happens to them.
The government of Canada created the RDSP in 2008 to alleviate the fiscal demands faced by people with disabilities and their families.
Contributions can be made to an RDSP until the end of the year the beneficiary turns 59, and also, contributions are not tax deductible. Any withdrawal from the RDSP is not included as income to the beneficiary.
Related: 14 Canadian Government Benefits For Low-Income Families To Apply For in 2023
Benefits of an RDSP
An RDSP is a great saving tool for Canadians living with disability to save money for the future without worrying about paying taxes on their earnings.
The grants and bonds from the federal government make the RDSP an enticing plan for many Canadian families and individuals. Here are a few benefits of opening an RDSP account in Canada:
- With an RDSP, you choose where to invest your money.
- The government contributes generously to the RDSP of Canadians. For every $1 saved, the government matches it with up to $3 through the Canada Savings Grant.
- If you have a low income and cannot invest, the Canadian government will still save for you. The government invests $1,000 each year for people living on a low income of less than $31,120 through the Canada Disability Savings Bond.
- The RDSP doesn’t stop your government and provincial benefits. You can have money in your RDSP and still get your benefits.
- Anyone with your permission can contribute to your RDSP, including friends, family, neighbours, organisations, charities, and foundations.
- You can spend your RDSP withdrawals on whatever you like.
- When you close your RDSP account, your contributions and investment gains are yours.
- RDSP is a powerful tool for long-term financial security. If you save $1,500 every year for 30 years, you would have saved nearly half a million dollars.
Who Is Eligible to Become an RDSP Beneficiary?
An individual can be designated as a beneficiary of an RDSP if the individual:
- Is eligible for the Disability Tax Credit (DTC)
- Has a valid Social Insurance Number (SIN)
- Is a Canadian resident.
- Is not older than 60 years
How To Open an RDSP Account
A plan holder is a person who opens the RDSP and makes contributions on behalf of the beneficiary.
To open an RDSP, the plan holder must contact a participating financial institution that offers RDSPs (RDSP issuers).
If the beneficiary is under the age of majority, a qualifying person can become the plan holder of that person is:
- A legal parent of the beneficiary
- A guardian, curator, or tutor of the beneficiary
- A public department, institution, or agency legally authorised to act for the beneficiary
However, if the beneficiary has reached the age of majority and can open the plan, the beneficiary can open an RDSP for themselves. If the parents already have a pre-existing RDSP, they remain holders and can add the adult beneficiary as a joint holder.
Also, if the beneficiary has reached the age of majority but is not contractually competent to enter into a plan, or their contractual competency is in doubt, a Qualifying Family Member (QFM) can open an RDSP for the individual and become a holder. The QFM can be a spouse, common-law partner, or parent of the individual.
Contributing To An RDSP Account
Anyone can contribute to your RDSP if they have written permission from you. Contributions can be to an RDSP until the beneficiary reaches 59 years.
Contributions are not tax-deductible, and there is no annual limit on contributions. However, there is a lifetime limit of $200,000 on contributions to one plan.
The government of Canada offers grants and bonds to match your contributions to the RDSP. Depending on your family’s annual income, you can qualify for the CDSG and CDSB.
How To Withdraw from RDSP Account
The RDSP is a long-term savings plan designed to support people with disabilities to save for the future as they age. Withdrawing regularly from your RDSP can impact the number of grants and bonds in your plan.
You can begin regular withdrawals from your RDSP by December 31 of the year you turn 60. However, you can withdraw sooner if you want. But you may need to pay back some grans and bonds when you withdraw funds.
You don’t have to repay grants and bonds when you withdraw funds at the age of 60, when the last time you received a grant or bond was more than ten years ago, or when you have a reduced life expectancy of fewer than five years.
RDSP Grants and Bonds
The government of Canada makes significant contributions to RDSPs of eligible Canadians with different income levels.
The government aims to match the contributions of eligible families and individuals. The government uses the family’s net income, as reported on the tax return for two years, to determine if the family is eligible to receive the grant.
Canada Disability Savings Grant (CDSG)
The Canadian government matched the contributions of eligible Canadians in their RDSP by paying a grant of 300%, 200%, or 100%.
The amount paid by the government depends on the family’s adjusted net income, and the amount contributed to the RDSP.
Each eligible RDSP can get a maximum of $3,500 per year in matching grants and a lifetime amount of $70,000. However, beneficiaries can only receive a grant on contributions before they turn 49.
If your adjusted family net income is less than $98,040, you can receive a grant of $3 on your first $500 for every $1 contributed, up to $1,500 yearly, and $2 on your next $1,000 for every $1 contributed, up to $2,000 yearly.
However, if your adjusted family net income is more than $98,040, you can receive a $1 on your first $1,000 for every $1 contributed, up to $1,000 yearly.
Canada Disability Savings Bond (CDSB)
The Canadian government pays the CDSB directly to the RDSP of eligible Canadians. The government pays a bond of $1,000 yearly to low-income Canadians with disabilities, up to a lifetime limit of $20,000.
You don’t have to contribute to your RDSP to receive the bond. The bond is paid into your RDSP until the year you turn 49.
However, how much you get still depends on your adjusted family net income. If your adjusted family net income is less than $32,028, you will receive the $1,000 bond. If it’s between $32,028 and $49,020, your bond will be calculated based on the formula in the Canada Disability Savings Act. No bond will be paid if your adjusted family net income is more than $49,020.
Related: Canada Learning Bond: Get Money For Your Child’s Education
Final Thoughts on Registered Disability Savings Plan
The Registered Disability Savings Plan (RDSP) is a great savings tool for Canadians and their families with disabilities.
So if you are eligible for the DTC, are looking for ways to save on a tax-deferred basis, and want funds eligible for government grants and bonds, you should consider opening an RDSP account.
FAQs on Registered Disability Savings Plan
What are the investment options for my RDSP?
You can choose to invest your RDSP funds in a variety of investment products. You can invest in GICs, ETFs, stocks, mutual funds, savings, etc.
The RDSP works just like the RESP, RRSP, and TFSA.
What happens if I’m no longer eligible for DTC?
If you are no longer eligible for Disability Tax Credit (DTC), you can close your RDSP or keep it open. If you keep it open, you can withdraw funds, but you can’t contribute to the plan or receive grants or bonds.
