RDSP: Securing the financial future of Canadians with Disabilities
If you have a child or a sibling with a disability, you have probably experienced some financial anxiety for their future. Individuals with disabilities often face higher health care expenses for and may struggle to maintain full-time employment. To help address these challenges, the Canadian government offers programs like the Registered Disability Savings Plan (RDSP). An RDSP offers unique features to help provide financial security for differently abled individuals, yet only 32% of eligible Canadians1 are aware of it. Learn how you an RDSP can benefit your loved ones.
How does an RDSP work2?
An RDSP is a long-term savings plan that allows individuals with disabilities to grow their savings tax-deferred while benefiting from substantial government contributions.
Eligibility and beneficiary
- Canadians under the age of 60 who are approved to receive a Disability Tax Credit are eligible.
- A parent, family member or anyone legally authorized by the beneficiary can open an RDSP for them. In cases where the beneficiary has contractual capacity, they can open it themselves.
Contributions
- There is no annual contribution limit but the lifetime contributions cannot exceed $200,000.
- The contributions are not tax-deductible but the earnings (interest or dividends) on the contributions can grow tax-deferred.
How can your loved one benefit from an RDSP2?
- Avail of government grants to kick-start the savings goal – The government offers several grants and financial assistance to help families accelerate their savings for individuals with a disability.
- Canada Disability Savings Grant (CDSG): The government matches contributions to an RDSP up to a maximum of $70,000. The match can range from 100% to 300%, depending on the contributor’s income and contribution levels.
- Canada Disability Savings Bond (CDSB): For low-income beneficiaries, the government will contribute up to $1,000 annually (lifetime maximum of $20,000), even if no contributions are made to the RDSP.
- Tax-deferred growth – While the contributions are not tax-deductible, you do not pay any taxes on their growth or earnings. Withdrawals are taxed as income but only on grants, bonds, and investment returns—not personal contributions.
- Usage flexibility – The beneficiary has complete flexibility for withdrawal of funds for any purpose.
- Multiple sources of contribution – Although a beneficiary can only have one RDSP account, they can receive contributions into it from any friends or family, subject to the lifetime limit of $200,000.
- Roll-over from RRSP – If a parent or grandparent passes away while they still have funds in their RRSP / RRIF, those funds (maximum of $200,000) can be rolled-over to the child or grandchild’s RDSP. This ensures more funds reach the beneficiary without being taxed in the estate, providing a larger inheritance to the beneficiary. However, rolled-over amounts do not qualify for government grants.
- Investment choices to accelerate funds growth – The investment choices available under an RDSP are just as varied as any other registered account, giving you access to stocks, mutual funds, ETFs to grow your savings tax-free and rapidly.
Important Considerations for RDSP Withdrawals
Since the primary purpose of a Registered Disability Savings Plan (RDSP) is to secure the long-term financial future of a loved one with a disability, it’s crucial to plan withdrawals carefully to avoid having to repay government grants and bonds. Generally, you will not be required to repay these amounts if any of the following conditions are met:
- The beneficiary is 60 years of age or older
- At least 10 years have passed since the last grant or bond was received
- The beneficiary has a life expectancy of five years or less
Thoughtful withdrawal planning helps maximize the benefits of your RDSP and ensures your loved one receives the full support intended.
How to make the most of an RDSP
Start early – There is no minimum age requirement to open an RDSP, so if you want to save for a child with special needs, open the RDSP as soon as possible to maximize the grants receivable and let the funds grow over a longer time horizon.
Strategize contributions – Contribute strategically to maximize the funding you can access through the grants and bonds.
Stay informed – Stay up to date with any regulation changes to RDSPs, to ensure continued eligibility for government grants
Integrate into financial planning – To create a comprehensive picture of the beneficiary’s assets and income in to retirement
By leveraging the unique features of RDSPs, families can provide enhanced financial security for their loved ones with disabilities, ensuring a more stable and independent future.
Contact me to better understand how to leverage an RDSP the best way possible!
Sources:
1 Stats Can – Survey on Savings for Persons with Disabilities, 2020 – released 2022-04-01
2 Government of Canada – Savings and Pension Plans
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