Registered Disability Savings Plans (RDSP) were introduced in 2008 as a long term tax deferred savings plan intended to help individuals, parents and others save for the long term financial security of a person who is under the age of 60 and eligible for the disability tax credit (DTC). Canada is really the only country that provides such a savings program for those with a long term disability. An RDSP is similar to an RESP but different.
If a beneficiary is under age 49, the plan will attract a government grant and bond (depending on income). Up to $200,000 in non-deductible contributions can be made to an RDSP and qualify for matching grants at the rate of 100%, 200% or 300%, depending on family net income subject to a lifetime limit of $70,000. A Canada Disability Savings Bond (CDSB) of up to $1,000 is paid annually to the RDSPs of low- and modest-income beneficiaries and families (subject to a lifetime limit of $20,000) regardless of any contributions being made. That’s free money that no one should disregard especially for those who often need it most.
While the amount of grant and bond depends on family income, it’s important to note that when a child reaches the age of majority, it’s only the beneficiary’s income that is included in “family income”.
In the majority of provinces, income payments from an RDSP don’t impact other social assistance programs and RDSP assets won’t impact eligibility for provincial benefits like ODSP. Contributions need to be withdrawn by the beneficiary starting at age 60 and consist of 3 parts: contribution, bonds/grants and income. The contribution portions of withdrawals are not subject to income tax.
The biggest restriction on the RDSP is the penalty for withdrawing the money early. A beneficiary can request a payment from the RDSP at any time in the form of a Disability Assistance Payment (DAP) but if the beneficiary withdraws money from the plan prior to age 60, there is a claw back of grants or bonds received within the last 10 years that must be partially repaid -$3 for every $1 withdrawn.
Another great advantage of RDSP’s which allows more money to be saved in a tax efficient manner for a beneficiary is the availability of rollovers from RESP’s, RRSPs, RRIFS and certain lump sum payments from registered plans in certain situations.
Read more about RDSP's here on our blog
An RDSP can provide a financial boost to those with a disability
