Registered Disability Savings Plan “RDSP”

People with disabilities face a distinct set of challenges throughout their lifetime that are financially demanding on the families and those who care for them. In 2008, the Canadian government launched the RDSP to facilitate the accumulation of funds for disabled persons without being penalized for receiving additional government benefits. These plans are structured to build long-term financial security and tax-deferred savings.

The key benefit of the RDSP is that funds contributed to the plan can grow tax-free. When money is withdrawn from the plan, taxes are then payable on part of the withdrawal. The government determines the income tax based only on the government contributions and any growth. The capital contributions are not subject to tax. Another advantage is that anyone can contribute to the plan with written consent of the account holder while each plan can only have one beneficiary. In addition to private contributions, there are several government matching programs in place such as endowments, Canadian Disabilities Savings Grants and Canadian Disabilities Savings Bonds. While there is a lifetime contribution cap of $200,000 for each beneficiary, there is no annual contribution limit.

How can I turn $25 to $1700? $25 contribution will result in a $150 Endowment (from Vancouver Foundation) plus $1525 in Government Incentives.

If a parent or grandparent has a disabled child or grandchild who is financially dependent on them, upon the passing of the parent or grandparent, an amount equal to the contribution room available in the RDSP at the time of the parent/grandparent’s death (up to a maximum of $200,000) can be transferred from their registered plans to the RDSP on a tax-deferred basis.  It is important to note that any growth is only tax deferred until funds are withdrawn from the RDSP, at which time the disabled beneficiary will be subject to income tax. This incentive creates a tax break for the estate of the parent or grandparent, leaving more money to be inherited by the beneficiaries.

Upon the termination of RDSPs, the sum of all government incentives received within the last 10 years must be repaid to the government. If the plan is terminated as a result of a beneficiary’s death, the balance will be paid to their estate and the estate is taxed on the growth.

Who is eligible for RDSP?

• Those who are also eligible for DTC (Disability Tax Credit)
• Under age of 60 when RDSP was opened
• Canadian Resident
• Have a valid SIN

Who can open an account for a disabled beneficiary?

• Contractually Competent adult – could be the beneficiary or other plan holder
• Must be an individual, legally authorized to act for beneficiary
• Guardian, parent, Public Guardian and Trustee, Representative or Committee

We encourage you to speak to your accountant or financial advisor for more details.

Written by Anne Duggan, Invited Advisor to Bell Alliance on Aspects of Aging