Registered Disability Savings Plan

Registered Disability Savings Plan

The RDSP is a tax-efficient savings plan designed to help parents or caregivers save for a person with a disability. One of the advantages of an RDSP is that investment income earned inside the plan is tax-free. Additionally, contributions to the RDSP may be eligible for the Canada Disability Savings Grant (CDSG), which can add to the total savings in the plan over time.

What is a Registered Disability Savings Plan (RDSP)?

The Registered Disability Savings Plan (RDSP) is a government-registered savings plan designed to help individuals with disabilities, along with their families or caregivers, save for future medical and living expenses.

The RDSP is available for disabled individuals who qualify for the disability tax credit (DTC). To be eligible, an accredited medical practitioner must certify that the individual has a qualifying disability.

Contributions to the RDSP may be eligible for grants through two financial programs offered by the Canadian government, the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB).

The money in an RDSP grows on a tax-deferred basis, meaning that it is tax-sheltered until the recipient starts making withdrawals.

Benefits of an RDSP

Government Grants: Contributions to RDSP may be eligible for two Government grant programs: The Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB).
Contribution Limits: There is no annual contribution limit for RDSP, but a lifetime contribution limit of $200,000.
Carrying Forward Grants and Bonds: Any unused eligible grants or bonds can be carried forward from the original date of Disability Tax Credit (DTC) eligibility.
Contributors: Anyone can contribute to the RDSP on behalf of the beneficiary with permission from the planholder.
Roll-Over From RESP: Unused funds from an RESP can be transferred to an RDSP, provided the beneficiaries are the same.
Tax-Deferred Savings: Like other registered plans, the money invested in an RDSP grows on a tax-deferred basis, meaning it is sheltered from taxes until the recipient starts withdrawing it.

How it works

The RDSP Plan Holder

An RDSP can be opened by an individual with disabilities who has reached the age of majority. It 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 that is legally authorized to act on behalf of the beneficiary.

The Beneficiary

To be eligible for an RDSP, the beneficiary must meet the following criteria:

● Have a valid Social Insurance Number
● Be eligible for the Disability Tax Credit (DTC)
● Be a resident of Canada when the plan is opened and throughout the period when contributions are made
● Be under the age of 60, except when transferring an existing RDSP to a new plan.

Contributions and Withdrawals

Contributing to an RDSP

Contributions to an RDSP are not limited to the plan holder. Any individual can contribute to an RDSP with the written permission of the plan holder, and the beneficiary must be a Canadian resident. However, the government only matches contributions up to age 49, even if contributions are made until the year the beneficiary turns 59.

Lifetime Contribution Limit

The lifetime contribution limit for an RDSP is $200,000, with no annual contribution limit. Although contributions are not tax-deductible, investment earnings grow tax-deferred.

Withdrawals

Withdrawals from an RDSP are not taxable for the beneficiary, but government grants, bonds, and investment earnings are taxable upon withdrawal. Additionally, if a withdrawal is made within ten years of the last government matching payment, a portion of the grant/bond would be clawed back based on the amount of the withdrawal.