A Registered Disability Savings Plan (RDSP) is a tax-advantaged savings account designed to provide long-term financial security for Canadians with disabilities. It allows funds to grow tax-free and provides access to government grants and bonds to help maximize savings.
Who is Eligible?
To open an RDSP, the beneficiary must:
- Be a Canadian resident
- Have a valid Social Insurance Number (SIN)
- Be eligible for the Disability Tax Credit (DTC)
- Be under the age of 60 (government contributions stop at 49)
A parent, guardian, or legal representative can open and manage an RDSP for a beneficiary if they are unable to do so themselves.
How an RDSP Works
RDSPs allow contributions with no annual limit, but there is a lifetime contribution limit of $200,000 per beneficiary. Contributions are not tax-deductible, but investments grow tax-free. Withdrawals consist of both personal contributions and government grants, with only the latter being taxed in the hands of the beneficiary.
Government Contributions: Grants & Bonds
One of the biggest benefits of an RDSP is access to government matching programs:
- Canada Disability Savings Grant (CDSG): Matches contributions based on family income, up to 300% on the first $500 and 200% on the next $1,000. The maximum lifetime grant is $70,000.
- Canada Disability Savings Bond (CDSB): Provides up to $1,000 per year for low-income families, even without contributions. The lifetime maximum is $20,000.
Withdrawals & Rules
Withdrawals must start by age 60 and come in two forms:
- Lifetime Disability Assistance Payments (LDAPs): Regular payments that continue for life.
- Disability Assistance Payments (DAPs): Lump-sum withdrawals.
If funds are withdrawn early, government contributions made in the last 10 years must be repaid under the “10-Year Rule.”
Why Open an RDSP?
- Maximizes government contributions for eligible individuals.
- Tax-free growth of investments.
- Long-term security for individuals with disabilities.
An RDSP is a powerful financial tool to support individuals with disabilities throughout their lives.