RDSP: Registered Disability Savings Plan
What is a registered disability savings plan?
An RDSP is an amazing savings and investment tool similar to an RESP (registered education savings plan) that intended for the long term savings and financial security of a person who is eligible for the disability tax credit (DTC).
This is a registered matched savings plan specifically for people who are eligible for the DTC (disability tax credit). There are multiple types of government contributions. First is the Canada Disability Savings Grant, The second is the Canada Disability Savings Bond.
Anyone can contribute to an RDSP; the beneficiary themselves or their family or others.
The money can be invested to grow over time tax-deferred, and the beneficiary (the person with the disability) can choose to do whatever they like with the funds upon withdrawal. It can be used for large purchases like a house or vehicle, or general living expenses.
Depending on household income, the federal government will match up to 300%. A few basic points to consider:
Canada Disability Savings Grant – * figures as of May, 2022.
- An RDSP can get a maximum of $3,500 in grants per year, and up to $70,000 lifetime.
- For every $1 you contribute to an RDSP the federal government can match up to $3. Provided your family income is below $98,040
- On the first $500 contributed they will match $3 for every $1, up to $1,500 per year.
- On the next $1,000 contributed they will match $2 for every $1, up to $2000 per year.
- If household income is over $98,040, the grant will match dollar for dollar up to $1,000 per year.
Canada Disability Savings Bond – * figures as of May 2022
- The bond lifetime limit is $20,000.
- No contributions have to me made to get the bond.
- If net family income is below $32,028 the bond will be $1,000.
- If net family income is above $32,028 but below $49,020 partial bond payment of the $1,000 may be paid
- If net family income is above $49,020 then no bond will be paid
Where do I get it?
Along with most major financial institutions, we are proud to offer our clients RDSP accounts for both themselves or a family member through one of our many partner companies.
Am I qualified?
To open an RDSP, you or the beneficiary must:
- Be eligible fo the Disability Tax Credit (DTC)
- Have a valid Social Insurance Number (SIN)
- Be a resident of Canada
- Be under the age of 60
If you are unsure if you or a family member is eligible for the Disability Tax Credit, you should consult a disability tax credit specialist.
Other facts to consider:
- Contributions to an RDSP are not tax deductible
- Contributions can be made until the end of the year in which the beneficiary turns 59
- The investments grow tax-deferred
- RDSP issuers have to deduct income tax from the government grant portion and investment income earned in the plan, and include it in the beneficiaries income in the year of withdrawal.
- There is no annual limit on amounts that can be contributed to an RDSP, however the overall lifetime limit for a singular beneficiary is $200,000.
- A beneficiary of an RDSP can receives government grants on contributions made until December 31st in the year they turn 49.
Is an RDSP right for me, my spouse, or my child?
An RDSP is a powerful financial planning tool, allowing you to grow your net worth substantially, preparing yourself or a loved one for retirement or later in life.
A tax-deferred plan allows the investments to grow tax free until withdrawals are made later in life. The deferral of taxes allows the investments to compound more over time resulting in a greater benefit to the beneficiary.
If you or a loved one is eligible for the DTC, the RDSP is a almost a necessity to help protect your financial future.
How do I go about setting up an RDSP?
The first step is to contact us for a free consultation and discuss how an RDSP can fit into your financial plan.
If you are already eligible for the DTC we simply set up and plan/account and the RDSP issuer will apply on your behalf to CRA.
After the account is approved and open we simply set up contributions, it is a very straight forward process with the right advice.
Get started by requesting a free strategy call below:
Here is a hypothetical sample for you:
You or your child is currently 20 years old and is eligible for the DTC.
You have a net annual income of $60,000.
If you contribute just $50 bi weekly ($1,300 annually) to an RDSP.
If we assume a 5% rate of return on investment for the account.
At age 60 you would have personally contributed only $37,375 but with grants and investment growth you would have $467,298 in your RDSP!
Pretty good deal all things considered.