A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person under the age of 60 who is eligible for the Disability Tax Credit. The RDSP helps Canadians with disabilities save for the future.
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age. Contributions that are withdrawn are not to be included as income for the beneficiary when paid out of an RDSP. However, the Canada disability savings grant, Canada disability savings bond and investment income earned in the plan are included in the beneficiary’s income for tax purposes when paid out of the RDSP.
A beneficiary can only have one RDSP set up, but may have several plan holders at any give time. The holder does not have to be a resident of Canada; however, the beneficiary must be a resident with a valid social insurance number and who is eligible for the Disability Tax Credit and under the age of 60.
RDSP payments can only be made to the beneficiary or to the beneficiary’s estate after the beneficiary’s death. Contributors are not entitled to a refund of their contributions.
There is no annual limit on amounts that can be contributed to an RDSP but there is an overall lifetime limit of $200,000. Plan holders may contribute to the plan until the end of the year in which the beneficiary turns 59.
The Canada Disability Savings Grant is an amount that the government of Canada contributes to an RDSP. The government will pay matching grants of 300%, 200%, or 100%, depending on the beneficiary’s family income and the amount contributed.
An RDSP can receive a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. A grant can be paid into an RDSP on contributions made to the beneficiary’s RDSP until December 31 of the year the beneficiary turns 49 years old.
The amount the grant is based on the beneficiary’s family income as follows:
|1||$81,941* or less||On the first $500||$3 for every $1 contributed||$1,500|
|2||$81,941* or less||On the next $1,000||$2 for every $1 contributed||$2,000|
|3||More than $81,941*||On the first $1,000||$1 for every $1 contributed||$1,000|
*The beneficiary family income thresholds are indexed each year to inflation. The income thresholds shown are for 2010.
A Canada disability savings bond is an amount paid by the government of Canada directly into an RDSP. The government will pay bonds of up to $1,000 a year to low-income Canadians with disabilities. No contributions are required to receive the bond. The lifetime bond limit is $20,000. A bond can be paid into an RDSP until the year in which the beneficiary turns 49 years old.
The amount the bond is based on the beneficiary’s family income as follows:
Beneficiary’s family income
|1||$23,855*or less (or if the holder is a public institution)||$1,000|
|2||Between $23,855*and $40,970*||Part of the $1,000 based on the formula in the Canada Disability Savings Act|
|3||More than $40,970*||No bond is paid|
There are two ways a beneficiary of a Registered Disability Savings Plan (RDSP) can withdraw funds.
Annual withdrawals – or Lifetime Disability Assistance Payments (LDAPs), begin by the end of the year in which the beneficiary turns 60. These annual payments will then continue for the life of the beneficiary. The maximum annual payment amount is based on the beneficiary’s age and the fair market value of the plan.
One-time withdrawal – This form of withdrawal is known as Disability Assistance Payments (DAPs), and can be paid to the beneficiary any time after the RDSP is established. However, this payment has a few important conditions to take into consideration:
- A DAP cannot be paid if it causes the value of the RDSP to fall below the total amount of grants and bonds that have been paid into the plan within the last 10-year period less any amount of grants and bonds paid in that period that has been repaid to the government
- While withdrawals from the plan can be made at any time for the benefit of the beneficiary, it is very important to note that any grant or bond received within 10 years prior to a payment must be repaid, as the plan is intended to encourage long-term savings
Amounts paid include a blend of taxable and non-taxable amounts. The CDSG, CDSB and income components are fully taxable to the beneficiary, while contributions are not taxed.
These payments will not affect your eligibility for federal government benefits, such as the Canada Child Tax Benefit or the Goods and Services Tax Credit, nor will Old Age Security or Employment Insurance benefits be affected.
Most provinces are participating in this program. However, provincial and territorial rules may differ. Please consult your provincial/territorial government for more information on the potential impact of RDSP assets and payments.