Registered Disability Savings Plan (RDSP) is a savings plan designed specifically for people with disabilities. The purpose of the plan is to ensure financial security for a disabled child when parents are no longer able to provide support. The plan was introduced in 2008.
Who can set up an RDSP?
A registered disability savings plan (RDSP) can be set up for a beneficiary who:
- is eligible for the disability tax credit (DTC)
- has a valid social insurance number
- is a Canadian resident
- is under the age of 60
Who can contribute to an RDSP?
Anyone can contribute to an individual’s RDSP: family, friends, neighbors, charities, foundations, and organizations, if they have the written permission of the plan holder.
Elements of RDSP
RDSP has the following elements:
- Canada Disability Savings Grants (CDSGs)
- Canada Disability Savings Bonds (CDSBs), and
- Investment earnings
Contributions to an RDSP
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.
Canada Disability Savings Grants (CDSGs)
The grant is the amount that the Government of Canada matches the contributions. It can be 300%, 200% or 100%, depending on the beneficiary’s family income and the amount contributed.
The maximum of the matching grants is $3,500 in one year and $70,000 over the beneficiary’s lifetime.
Canada Disability Savings Bonds (CDSBs)
The bond is the amount paid by the Government of Canada directly into an RDSP. The amount of the bond is based on the beneficiary’s adjusted family net income, and the maximum amount of the bond is $1,000 in one year and $20,000 in a lifetime.
Withdrawal from an RDSP
There are two main types of withdrawals can be made from an RDSP:
- Lifetime Disability Assistance Payments (LDAP): it is paid at least once a year until the RDSP is terminated or the beneficiary has died. The payment must begin no later than the end of the year when the beneficiary turns 60.
- Disability Assistance Payments (DAP): it can be made at any time, but grants and bonds need to be repaid if they haven’t been in the plan for at least 10 years.
Contributions that are withdrawn from an RDSP are not included as income to the beneficiary. However, the CDSGs (grant), the CDSBs (bond), the investment income earned in the plan, and the proceeds from rollovers are included in the income for tax purposes.
Eligibility for other federal and provincial benefits
Withdrawals from RDSP do not reduce the beneficiary’s entitlement to any federal income-tested benefit, like child tax benefit or the federal sales tax credit. Furthermore, most provinces and territories have a full exemption of RDSP income and assets from provincial income-tested programs. Quebec, New Brunswick and Prince Edward Island have partial exemptions in place.