Registered Disability Savings Plans
By Mike Reilly 2020/02/28
Building financial security for Canadians with disabilities
Many families worry about how a loved one with a disability will be cared for in future years. Thanks to the Registered Disability Savings Plan (RDSP) and generous federal grants and bonds, it’s now easier for people with disabilities to save for their long-term financial security. In addition to your own contributions, the Canadian government can help you save by adding up to $4,500 each year to the amount you contribute.
The sooner you start saving, the earlier you can start building long-term financial security.
Who qualifies for an RDSP?
You qualify to be an RDSP beneficiary if you are a recipient of the Disability Tax Credit, a resident of Canada, less than age 60 and have a valid Social Insurance Number
Why are RDSPs a good way to save?
RDSPs are a good way to save because:
- Anyone can contribute to an RDSP with the written consent of the account holder
- The total lifetime contribution for each beneficiary is $200,000, with no annual contribution limits
- Contributions can be matched, based on family net income, with up to $3,500 a year in Canada Disability Savings Grants (CDSG) and up to $1,000 a year in Canada Disability Savings Bonds (CDSB).
- The money you contribute grows tax free
- Savings and withdrawals do not affect federal and provincial income-tested benefits
- Carry forward on CDSG and CDSB is available back 10 years or to date of diagnosis. Since RDSP was launched in 2008, carry forward can go back to then. The maximum grant someone can receive in a year is $10,500 and the maximum bond is $11,00.
Many people are concerned that they won’t benefit from an RDSP if they have low (or no) income. However, because of the CDSB, it is possible to have funds deposited even without any contributions by the subscriber.
Here's an example of how your money can grow: Jack, whose family net income is less than $26,364 a year, opens an RDSP at age 19 and contributes $1,500 a year until he is age 49. He invests the money in a balanced mutual fund that returns 5.5% annually. Even though his annual contributions only total $46,500 ($1,500 x 31 years), when those contributions are combined with Canada Disability Savings Grants and Canada Disability Savings Bonds, by age 50 Jack will have accumulated $398,891.
Withdrawing your money
You must begin withdrawing funds from your RDSP by the end of the year you turn 60. You may withdraw funds earlier but be sure to note that once you make a withdrawal of any amount, you must repay $3 worth of federal grants and bonds paid into the RDSP in the previous 10 years for every $1 withdrawn. Withdrawals consist of non-taxable contributions, taxable government monies and taxable growth.
Contact a licensed professional financial advisor to see if you qualify and how an RDSP may benefit your future.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors