Lesser known than savings programs like the RRSP, RESP or TFSA, the RDSP was introduced in 2008 to help individuals with disabilities save for their long-term financial security. With tax-deferred growth, government grants and bonds and more, an RDSP can provide a significant nest egg. Below, we’ll explore benefits and considerations of this tool.
What are the benefits of having an RDSP for your loved one?
Tax-deferred growth:
Contributions to an RDSP are not tax-deductible, but the earnings on the contributions grow tax-free while they remain in the plan.
Government grants and bonds:
The government offers two types of contributions:
-
Canada Disability Savings Grant (CDSG):
The government matches contributions up to 300%, depending on the beneficiary’s family income and the amount contributed. The maximum grant per year is $3,500, with a lifetime limit of $70,000. -
Canada Disability Savings Bond (CDSB):
Low and modest-income beneficiaries can receive up to $1,000 per year in bonds, with a lifetime limit of $20,000.
Flexibility:
Contributions to an RDSP can continue until the end of the year the beneficiary turns 59.
Retirement and education savings rollovers:
Funds from a deceased parent or grandparent’s registered retirement plans can be rolled over into an RDSP tax-free. As well, accumulated income from a beneficiary’s Registered Education Savings Plan (RESP) can be transferred to their RDSP under certain conditions. Both types of rollovers count toward the RDSP contribution limit (see below).
A few things to keep in mind:
-
To open an RDSP, the beneficiary must be approved for the Disability Tax Credit, which has specific criteria.
-
While it’s possible to access funds before age 59, there are certain rules to be aware of. At age 60, the RDSP must start making payments to the beneficiary.
-
There is a lifetime contribution limit of $200,000, and grant and bond eligibility ends after the beneficiary turns 49.
Is an RDSP right for your loved one? While not everyone offers RDSPs due to lower demand, we’re highly experienced in opening and maximizing this savings plan. Reach out to us anytime If you have questions about this or for other investment planning advice and guidance — we’re always here to help.