What is a Registered Disability Savings Plan (RDSP)?
The RDSP is a government registered plan that helps individuals with disabilities and their families or caregivers save for future medical and living expenses.
The RDSP was developed to help parents and caregivers save for a disabled person who is eligible for the disability tax credit (DTC). The DTC is available to anyone with a qualifying disability as certified by an accredited medical practitioner. Learn about the DTC and find out if you qualify.
Contributions may qualify for grants through two financial programs offered by the Canadian government; the Canada Disability Savings Grant and the Canada Disability Savings Bond.
Like other types of registered plans, the money in an RDSP grows on a tax-deferred basis, meaning, it is tax sheltered until the recipient starts making withdrawals.
Benefits of an RDSP
Contributions may qualify for two Government grant programs: The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB)
No annual contribution limit; only a lifetime contribution limit of $200,000
Any unused eligible grants or bonds can be carried forward from the original date of DTC eligibility
Anyone can contribute on behalf of the beneficiary with permission from the planholder
Unused funds from an RESP can be rolled into an RDSP, as long as the beneficiaries are the same
The Canada Disability Savings Grant is a matching grant, which means that the Government contributes to your RDSP to help you save. The Government offers matching grants of up to 300% depending on the beneficiary’s family income and the amount contributed. The maximum grant amount is $3,500 per year, with a lifetime limit of $70,000. Grants are paid into an RDSP up to the end of the year in which the beneficiary turns 49.
If your family net income is less than or equal to $97,069:
For the first $500 you contribute, the Government will deposit $3 for every $1 you contribute, up to $1,500 a year
For the next $1,000 you contribute, the Government will deposit $2 for every $1 you contribute, up to an additional $2,000 a year
Example: A contribution of $1,500 would generate a grant of $3,500
If your family net income more than $97,069:
For the first $1,000 you contribute, the Government will deposit $1 for every $1 you contribute, up to $1,000 a year.
Example: A contribution of $1,000, would generate a grant of $1,000
The Canada Disability Savings Bond is a grant program for low- and modest-income Canadians. Qualifying recipients can receive up to $1,000 a year, depending on the beneficiary’s family income. You don’t need to make contributions to receive the grant, and there is a lifetime limit of $20,000. Bonds are paid into an RDSP up to the end of the year in which the beneficiary turns 49.
If your family income is less than or equal to $31,711:
The Government deposits $1,000 each year to the RDSP
If your family income is between $31,711 and $48,535:
The Government deposits a portion of the $1,000 to an RDSP each year. As the income increases, the Bond amount paid into the RDSP decreases
How it works
The RDSP Plan holder
Individuals with disabilities can open their own RDSP, provided they have reached the age of majority. RSDPs can also be opened by:
- A legal parent, guardian, tutor, or curator for the beneficiary
- An individual who is legally authorized to act on behalf of the beneficiary
- An organization legally authorized to act on behalf of the beneficiary
To qualify for an RDSP, the beneficiary must:
- Have a valid Social Insurance Number
- Be eligible for the Disability Tax Credit (DTC)
- Be a Canadian Resident when the plan is started and when all contributions are made
- Be under the age of 60 (except when transferring in an existing RDSP)
Contributions and withdrawals
Anyone can contribute to an RDSP with the written permission of the plan holder. The plan holder doesn’t have to be a resident of Canada, but the beneficiary must be. Contributions can be made up until the year that the beneficiary turns 59, but the government will only match contributions up to age 49.
There is no annual contribution limit, but there is a lifetime contribution maximum of $200,000. Contributions are not tax deductible, but earnings will grow on a tax-deferred basis.
Contributions withdrawn from an RDSP are not included in the beneficiary’s income for tax purposes, however, government grants, bonds, and investment income earned within the plan are taxable on withdrawal.
Worth noting, if a withdrawal is made within 10 years of the last government match payment, the grant/bond portion would be clawed back based on the amount of the withdrawal.
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